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A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Department of
Environmental Quality
Waste Programs Division
Performance Audit Division
August • 2004
REPORT NO. 04 – 06
Performance Audit
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting servic-es
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Representative John Huppenthal, Chair Senator Robert Blendu, Vice Chair
Representative Tom Boone Senator Gabrielle Giffords
Representative Ken Clark Senator Peter Rios
Representative Ted Downing Senator Thayer Verschoor
Representative Steve Yarbrough Senator Jim Weiers
Representative Jake Flake (ex-officio) Senator Ken Bennett (ex-officio)
Audit Staff
Lisa Eddy, Manager and Contact Person
Michelle Antieau Chris Horton
Michael Nickelsburg
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
August 30, 2004
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Stephen A. Owens, Director
Arizona Department of Environmental Quality
Transmitted herewith is a report of the Auditor General, a Performance Audit and Sunset Review
of the Department of Environmental Quality, Waste Programs Division. This report is in response
to a November 20, 2002, resolution of the Joint Legislative Audit Committee. The performance
audit was conducted as part of the Sunset review process prescribed in Arizona Revised Statutes
§41-2951 et seq. I am also transmitting with this report a copy of the Report Highlights for this
audit to provide a quick summary for your convenience.
As outlined in its response, the Department of Environmental Quality agrees with all of the
findings and plans to implement all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on August 31, 2004.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
Services:
The Waste Programs Division, implements programs to reg-ulate
and monitor the handling of solid and hazardous waste,
identify and oversee the cleanup of hazardous waste sites,
and minimize waste generation. The Division provides serv-ices
in five main areas:
􀁺􇩔 The Solid Waste program—Monitors relevant waste
storage, treatment, and disposal facilities (such as
landfills), and encourages waste reduction, reuse,
and recycling.
􀁺􇩔 The Hazardous Waste program—Monitors hazardous
waste generation, storage, treatment, and disposal.
􀁺􇩔 The Underground Storage Tanks (UST) program1—
Monitors all USTs, such as gasoline storage tanks, to
ensure proper installation and operation. It is also
responsible for overseeing the cleanup of sites con-taminated
by leaking USTs.
􀁺􇩔 The Superfund section—Manages the identification
and cleanup of sites contaminated by hazardous sub-stances.
The cleanup of these sites takes place as
part of the Water Quality Assurance Revolving Fund
(WQARF) or in conjunction with federal agencies.
􀁺􇩔 The Voluntary Remediation and Prevention program—
Oversees voluntary remediation of contaminated sites
and promotes pollution prevention.
Facilities:
The agency’s headquarters are located at 1110 West
Washington Street in Phoenix and are leased under the PLTO
(private lease-to-own) program. The Waste Division uses
approximately 43,000 square feet at this facility. The
Department pays an annual lease fee of nearly $3.5 million
for the use of 184,200 square feet. In addition to the Central
Phoenix Office, the Division has some staff located in the
PROGRAM FACT SHEET
Department of Environmental Quality
Waste Programs Division
Program revenue:
$33 million (fiscal year 2003)
Program staffing:
253 FTEs, including 78 vacancies (as of April 1, 2004)
Office of the Auditor General
Superfund
(62)
Underground Storage
Tank—Corrective
Hazardous Waste Action (49)
(43)
Solid Waste
(35)
Underground
Storage Tank—
Program Support
(32)
Capacity
Development (28)
Director’s
Office (4)
Water Quality
Assurance
Revolving Fund
$19.8 million
State Assurance
Fund
$4.5 million
Federal
Grants
$4.2 million
Licenses,
Permits, and
Other Fees
$3.2 million
General Fund
Appropriations
$1.33 million
Interest
$179,000
Miscellaneous
$138,000
1 After the completion of audit work, effective August 2, 2004, the UST program has been moved to the newly created
Tank Programs Division.
Southern Regional Office (SRO) in Tucson. The SRO is located in a state-owned building that the
Department rents from the Department of Administration. The annual lease costs $116,000 for
5,700 square feet. The Department does not break down these building costs by division.
Equipment:
The Division owns emergency response, and soil and groundwater sampling equipment. The
Division also pays the Department of Administration a monthly lease fee of nearly $10,000 for 26
vehicles.
Mission:
To protect and enhance public health and the environment by reducing the risk associated with
waste management, regulated substances, and contaminated sites.
Program goals:
The Waste Programs Division has adopted the Department’s four goals .
1. Improve the quality of Arizona’s air, land, and water (by reducing the risk associated
with waste management and contaminated sites).
2. Enhance relationships with the public, the regulated community, and agency partners.
3. Provide leadership on children’s environmental health.
4. Provide value to all of Arizona.
Adequacy of the performance measures:
The Division’s 16 performance measures are generally adequate, and include 10 outcome
measures, 3 output measures, 2 efficiency measures, and 1 quality measure. However, the
Division should consider adopting a few additional performance measures to more fully capture
the breadth of its work. For example, the Division could create an input measure that reports the
number of leaking underground storage tank (UST) incidents reported, and an output measure
that reports the number of letters of closure issued. The Division already tracks and reports this
type of data to the UST Policy Commission. Additionally, the Division has not developed any per-formance
measures related to providing leadership on children’s environmental health.
State of Arizona
Source: Auditor General staff compilation of unaudited information from the Department and Arizona Financial
Information System (AFIS) Accounting Event Transaction File for the year ended June 30, 2003.
The Office of the Auditor General has conducted a performance audit of the
Department of Environmental Quality, Waste Programs Division pursuant to a
November 20, 2002, resolution of the Joint Legislative Audit Committee. This audit
was conducted as part of the Sunset review process prescribed in A.R.S. §41-2951
et seq and is the second in a series of four reports on the Department of
Environmental Quality. The first report focused on the Water Quality Division, and the
subsequent reports will focus on the Air Quality Division and an analysis of the 12
statutory Sunset factors.
The Department’s Waste Programs Division regulates underground storage tanks
(USTs), landfills, and other facilities that store solid waste and hazardous waste, such
as dry cleaning solvents.1 The Division also operates or assists with two cleanup
funds. One, the State Assurance Fund, assists underground storage tank owners
and operators with cleanup costs if their tanks leak. The second, the Water Quality
Assurance Revolving Fund (WQARF), is for cleaning up sites that have been
contaminated by hazardous substances.
Changes made to the State Assurance Fund, and
Department should take additional actions (see pages 11
through 19)
The Legislature recently made changes to the State Assurance Fund (Fund), and the
Department should take additional actions to increase compliance with financial
assurance requirements and to reduce costs to the Fund. The Fund, supported by a
$.01 per gallon excise tax on regulated USTs, based on the quantity of regulated
substances placed in a tank in any calendar year, assists qualifying UST owners and
operators with up to $1 million per leak to clean up leaking underground storage tank
sites. The Legislature created the Fund in 1990 to help UST owners meet federal and
state requirements for financial responsibility. These regulations require that UST
owners acquire a minimum level of financial assurance to cover costs associated
with the cleanup of leaking USTs. Although this assurance could normally be
1 Effective August 2, 2004, UST regulation is located in the newly created Tank Programs Division.
Office of the Auditor General
SUMMARY
page i
provided through private insurance, in the late 1980s private insurance became less
available as insurers declined to continue writing policies. The Fund was intended to
help fill the gap created by the declining insurance availability. However, insurance is
currently available and affordable, and most UST owners and operators who are in
compliance with financial assurance requirements have private UST insurance.
In May 2004, legislation making several important changes to the Fund was passed.
First, the legislation changed the requirement that UST owners and operators first
access their own insurance before applying to the Fund. Additionally, the legislation
set June 30, 2006, as the last day that UST releases can be reported to the
Department to maintain eligibility for cleanup assistance from the Fund. Owners and
operators of leaking USTs who have not reported releases by that date will need to
access their alternative financial assurance mechanism, such as private UST
insurance, to pay for cleanup costs.
The legislation also created a Regulated Substance Fund to succeed the State
Assurance Fund in July 2011. The Regulated Substance Fund will provide cleanup
assistance to sites for which the UST owner cannot be located within 90 days. The
legislation directs the Department’s director to transfer money from the State
Assurance Fund to the Regulated Substance Fund once all State Assurance Fund
claims are paid. However, if the State Assurance Fund still has unpaid claims in July
2011, then the Regulated Substance Fund will not receive any funding until the claims
are paid. Further, the $.01 per gallon excise tax will not begin funding the Regulated
Substance Fund as scheduled until all the State Assurance Fund’s claims are paid.
The Department should build on the legislative changes to the Fund by taking steps
to improve UST owners’ and operators’ compliance with financial assurance
requirements. Compliance with these requirements will be even more important as
eligibility for the State Assurance Fund ends, when owners and operators have only
their own financial assurance to provide for cleanup of leaking USTs. As of January
2004, only 62 percent of UST facilities have met these state and federal requirements.
The Department should continue its work to improve the rate of compliance with
financial assurance requirements, including using formal enforcement actions if
necessary.
Additionally, the Department should take steps to reduce costs to the Fund. First, the
Department should reassess the Fund’s cost ceilings to see if they are too high.
Private consultants who are hired by the owners, operators, or Fund volunteers to
clean up a leaking UST site can bill the Fund for the cleanup work that is performed.1
However, there are limits, called cost ceilings, on the amount that consultants can bill
the Fund for various cleanup activities. Key UST stakeholders convened by the
director believe that cleanup costs are inflated to the point that the cost ceilings are
no longer the upper limit, but have become the going price of the cleanup work.
Further, according to some fund management staff, the cost ceilings are higher than
1 A volunteer is someone who has acquired ownership or control of property where a UST is located, but is not the owner
of the UST. A volunteer may provide for cleanup of a leaking UST and may receive Fund coverage, but is not legally liable
for cleanup.
State of Arizona
page ii
they should be because they were based on a cost survey that was created using a
flawed method. If the Department uses a cost survey to create its next set of cost
ceilings in June 2005, department management should ensure that methodology
used to perform the cost survey is appropriate. Further, fund management should
explore the possibility of using competitive bidding for cleanup work as a method for
controlling costs.
Division should improve its hazardous waste
enforcement efforts (see pages 21 through 28)
The Department should improve the timeliness of issuing, escalating, and resolving
hazardous waste enforcement actions. The Division is responsible for ensuring that
all hazardous waste in Arizona is stored, transported, and disposed of properly. It is
important for hazardous waste to be managed properly because it can represent a
significant public health threat. An enforcement action, whether informal or formal, is
taken when violations of hazardous waste laws and regulations are found at a facility.
However, the Division sometimes takes several months to issue an enforcement
action when it finds a violation. For example, while the Division’s policy requires it to
send an enforcement action to a facility’s responsible party within 45 days of the
inspection, the Division has taken longer than 90 days to issue some actions.
Although the Division immediately notifies the facility of serious violations in writing at
the time of the inspection, not as much detail and information is included as on the
official enforcement action. Further, the responsible party may be unaware of the
details for compliance regarding less serious violations and therefore remain out of
compliance longer. In addition, the Division does not always escalate enforcement
actions to the next level when responsible parties do not correct their facilities’
violations and return to compliance.
To improve its enforcement efforts, the Division should take several steps. First, the
Division should explore ways to streamline its review and approval process for
enforcement actions. The Division should also modify its computer system so that it
will produce reports that management and staff can use to track the status of
enforcement actions that are in the review process. Finally, the Division should
escalate enforcement actions to the next level as appropriate.
Other pertinent information (see pages 29 through 36)
During the audit, auditors gathered information about the State’s Water Quality
Assurance Revolving Fund (WQARF) program, also known as the State Superfund
program. The WQARF program is the state program responsible for identifying,
Office of the Auditor General
page iii
assessing, and cleaning up soil and groundwater contaminated with hazardous
substances. In many respects, WQARF is similar to the federal Superfund program,
and both programs are currently responsible for cleaning up sites in Arizona.
However, reforms in 1997 substantially changed several key aspects of WQARF.
These reforms included dedicating more revenues to the program and changing the
liability standard to assign financial responsibility based on each party’s proportion
of the contamination.
As of March 31, 2004, the 33 sites on the WQARF registry were in various stages of
cleanup. At all 33 sites, the Department has evaluated the current riskto the public
and the environment. At 10 sites, cleanup work has not yet begun. Sixteen sites are
in the process of undergoing or have just completed the remedial investigation,
which is the first step. One site is in the feasibility study stage, which identifies several
options for cleanup. One site has just begun the process to identify the final cleanup
plan, two sites have proposed final cleanup plans in place, and for three sites work
on the final remedy is ongoing. In order to assign financial liability, the Department
has started searches for parties potentially responsible for contamination at all 33
sites.
According to the Department, it has recovered $12.4 million for cleanup from
responsible parties, and responsible parties have also spent another $120 million for
cleanup on their own. Lastly, auditors determined that for fiscal year 2004, the
Departments’s categorization of the WQARF program’s administrative costs and the
methodology used to calculate these costs appear appropriate.
State of Arizona
page iv
Office of the Auditor General
TABLE OF CONTENTS
continued
1
11
11
12
15
17
19
21
21
23
25
28
29
29
31
34
35
36
Introduction & Background
Finding 1: Changes made to the State Assurance
Fund, and Department should take additional actions
Fund provides coverage for leaking USTs
Recent legislation significantly changed the Fund
Greater compliance needed when Fund eligibility ends
Fund costs could be reduced
Recommendations
Finding 2: Division should improve its hazardous waste
enforcement efforts
Division regulates through inspections and enforcement actions
Division should improve enforcement timeliness
Division should ensure facilities correct violations
Recommendations
Other Pertinent Information
Superfund programs in Arizona
WQARF cleanup process
Potentially responsible party searches
Cost recovery and cleanup spending
Administrative costs are calculated appropriately
page v
State of Arizona
TABLE OF CONTENTS
Tables:
1 Waste Programs Division
Schedule of Revenues and Expenditures
Years Ended June 30, 2002 and 2003
(Unaudited)
2 Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
3 State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
4 Hazardous Waste Section
Timeliness of Issuing Informal Enforcement Actions
Fiscal Years 2001 through 2004
5 Hazardous Waste Section
Status of Informal Enforcement Actions
Fiscal Years 2003 and 2004
Figures:
1 Water Quality Assurance Revolving Fund (WQARF)
Cleanup Process
As of March 31, 2004
2 Water Quality Assurance Revolving Fund
Status of Sites by Stage
As of March 31, 2004
7
8
9
24
26
32
33
concluded
page vi
The Office of the Auditor General has conducted a performance audit of the
Department of Environmental Quality, Waste Programs Division pursuant to a
November 20, 2002, resolution of the Joint Legislative Audit Committee. This audit
was conducted as part of the Sunset review process prescribed in A.R.S. §41-2951
et seq and is the second in a series of four reports on the Department of
Environmental Quality. The first report focused on the Water Quality Division, and the
subsequent reports will focus on the Air Quality Division and the analysis of the 12
statutory Sunset factors.
Division regulates waste pollutants in Arizona
The Waste Programs Division is one of four divisions within the Department of
Environmental Quality (Department). The other divisions are the Air Quality Division,
the Water Quality Division, and the Administrative Services Division.1 The Waste
Programs Division’s mission is to protect public health and the environment by
reducing risk associated with waste management, regulated substances, and
contaminated sites. The Division is responsible for regulating underground storage
tanks (USTs) that contain petroleum products; as well as solid waste, such as refuse
in landfills; and hazardous waste, such as dry cleaning solvent. The Division also
oversees the cleanup of Water Quality Assurance Fund (WQARF) sites, the State’s
Superfund program, at which soil or water are contaminated with hazardous
substances.
The danger posed by waste products is significant. For example, petroleum that
leaks from an underground storage tank can seep into the soil and contaminate
groundwater. A leaking underground storage tank may also present other health and
environmental risks, including the potential for fire and explosion. Proper
management of solid and hazardous waste is needed to ensure that waste does not
enter the environment and potentially adversely affect people’s health or the
environment. Solid waste can also be become a nuisance, especially at landfills
where blowing litter and odors can negatively impact nearby residents. Poor
management of the growing amount of waste produced in the United States after
1 After the completion of audit work, the Department created a fifth division, the Tank Programs Division, effective
August 2, 2004.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
World War II led to many areas being contaminated. These areas are now part of
federal or state Superfund programs, which provide funding and oversight for the
cleanup of contaminated soil or water.
Division organization and responsibilities
According to the Waste Programs Division, as of April 1, 2004, it had 253 FTEs, of
which 78 were vacant positions. The employees are organized in 6 sections, each
providing a variety of services related to waste management, regulated substances,
and contaminated sites.1
􀁺􇩕 Underground Storage Tanks Program (USTs)—The UST program is divided into
two sections, Program Support and Corrective Action:
􀂄􈑐 Program Support Section (32 FTEs, 9 vacancies)—This program registers
and maintains an inventory of all USTs. It also performs inspections of USTs
to ensure that the proper leak detection equipment has been installed and
is working correctly, and educates UST owners and operators about
monitoring leak detection equipment. Additionally, this program certifies
UST installers and other UST service providers. Further, the program is
responsible for ensuring that UST owners and operators comply with
financial assurance regulations, such as the minimum amount of insurance
that owners must maintain to provide for cleanup. Finally, the program
enforces noncompliance with leak detection regulations or financial
assurance through informal enforcement actions, such as giving the UST
owner or operator a Notice of Opportunity to Correct Deficiencies (NOC) or
a Notice of Violation (NOV), or formal enforcement actions such as an
administrative order or consent order.
􀂄􈑃 Corrective Action Section (49 FTEs, 12 vacancies)—This program is
responsible for overseeing the cleanup of leaking USTs and can issue
NOCs or NOVs, and administrative orders against entities that are not
performing needed remediation. The program also contains the state-lead
program, through which it oversees cleanup on sites with no known owner,
or whose owners are financially or technically unable or are unwilling to
provide for remediation work.
􀁺􇩈 Hazardous Waste Section (43 FTEs, 15 vacancies)—Arizona received final
authorization from the Environmental Protection Agency (EPA) in 1985 to
manage the State’s hazardous waste program. The Hazardous Waste Section
is responsible for ensuring that all hazardous waste in Arizona is stored,
transported, and disposed of properly, and is largely a preventative program to
1 The Waste Programs Division’s total of 253 FTEs includes 4 FTEs in the Director’s Office, including the division director,
the deputy division director, a rule writer, and an administrative assistant.
State of Arizona
page 2
keep hazardous waste from entering the environment. This is accomplished in
four ways: 1) by conducting periodic inspections of hazardous waste
transporters, generators, and treatment, storage, and disposal (TSD) facilities;
2) by taking enforcement actions against facilities’ responsible parties that are
not following the applicable state and federal regulations; 3) by permitting
facilities that treat, store, and/or dispose of hazardous waste; and 4) by tracking
hazardous waste from generation to disposal.
􀁺􇩓 Solid Waste Section (35 FTEs, 16 vacancies)—The Division’s Solid Waste
Section monitors relevant waste storage, treatment, and disposal facilities (such
as landfills) and encourages waste reduction, reuse, and recycling. The
regulation of solid waste facilities includes the approving of operational plans,
issuing permits, and monitoring compliance through facility inspection. The
Department can take enforcement action, such as issuing NOCs and NOVs
against responsible parties found out of compliance during an inspection. The
agency receives funding for the regulation of solid waste from the General Fund,
as well as other sources, such as the Solid Waste Fee Fund and the Recycling
Fund.
􀁺􇨠 Superfund Section (62 FTEs, 21 vacancies)—This section is responsible for
identifying, assessing, and cleaning up sites on which the soil or groundwater
has been contaminated with hazardous substances. The section uses the
Arizona Water Quality Assurance Revolving Fund (WQARF), created under the
State’s Environmental Quality Act of 1986, to support hazardous substance
cleanup efforts at these WQARF, or state Superfund, sites. The section also
assists efforts at federal sites, known as federal Superfund sites, that have soil
or water contaminated with hazardous substances. Finally, the section also
works to identify parties responsible for contamination at a site and to recover
appropriate cleanup costs from them.
􀁺􇨠 Capacity Development Section (28 FTEs, 5 vacancies)—The Capacity
Development section has a variety of functions. These include oversight of
voluntary cleanup programs, identification of new WQARF sites and federal
Superfund sites, and determination of standards for cleanup at particular sites.
The section also employs one FTE to write administrative rules relating to
division programs, and assists other sections with data management.
The Division also works with the State Assurance Fund (Fund) section, which is
located in the Administrative Services Division. The Fund exists to assist UST owners
and operators with the costs of cleaning up leaking USTs by providing payments of
up to $1 million for eligible cleanup costs.
􀁺􇩓 State Assurance Fund Section (31 FTEs, 2 vacancies)—This section
administers the State Assurance Fund by processing claims applications,
reviewing the applications to ensure that they meet technical and cost
requirements, and paying eligible claims. In fiscal year 2003, the section paid
Office of the Auditor General
page 3
approximately $15.6 million to help clean up contaminated UST sites. According
to fund management reports, the Fund received 699 applications in calendar
year 2003. As of March 31, 2004, the section reduced the backlog of
unprocessed claims to 17.
In May 2004, the Legislature passed Laws 2004, Chapter 273, which provided
that eligibility for the Fund would end in 2006 and the Fund itself would be
terminated no later than 2013. After this legislation was passed, the Department
consolidated the UST Corrective Action Section, the UST Program Support
Section, and the State Assurance Fund Section into a new division, called the
Tank Programs Division. The Tank Programs Division plans to focus on
implementing the new legislation, increasing outreach efforts across the State,
increasing inspections and compliance, and streamlining the State Assurance
Fund.
Update of previous Waste Programs Division audits
The Office of the Auditor General has reviewed the State Assurance Fund and
aspects of the Waste Programs Division in previous audit reports. This report
updates some information found in those reports.
􀁺􇩓 State Assurance Fund—An audit in 1998 (Auditor General Report No. 98-4)
found that the Fund had a $48 million backlog of claims. This backlog was the
result of several factors, including insufficient revenues, high administrative
costs, and the Legislature sweeping some money from the Fund. The report
recommended some ways to reduce the backlog and also recommended that
the Legislature consider sunsetting the Fund. An audit in 1999 (Auditor General
Report No. 99-21) found that the backlog of claim payments had increased to
$55 million.
The current audit discusses the changes made by Laws 2004, Chapter 273 and
reports on additional changes the Department could make to increase
compliance with UST financial assurance requirements and to reduce costs to
the Fund (see Finding 1, pages 11 through 19).
􀁺􇩈 Hazardous Waste Enforcement—An audit in 1993 (Auditor General Report No.
93-8) found that the Hazardous Waste Section was slow to resolve enforcement
cases. The Section rarely used strong enforcement tools, which allowed
violations to continue for years without closure.
This audit finds that some of the same conditions present in 1993 still exist today
and that the Hazardous Waste Section could still improve its enforcement
activities. Specifically, this audit found that the Division could improve its
State of Arizona
page 4
timeliness for issuing enforcement actions and should escalate enforcement
actions to the next level when necessary (see Finding 2, pages 21 through 28).
􀁺􇩗 Water Quality Assurance Fund—WQARF has been included in several audits
performed by the Auditor General’s Office. Report No. 93-8, issued before
WQARF reform in 1997, found that the remediation of contaminated sites was
taking too long. Weak enforcement and a lack of funding contributed to this
problem. The report further detailed how the lack of funding for WQARF
adversely impacted work on remedial projects and recommended that the
Legislature reconsider funding for WQARF. Report No. 99-21 was completed
soon after the reforms of 1997, when it was still too early to assess the changes
made to the program. However, it was noted that the new proportional liability
standard would pose new challenges for the Department in regard to finding
responsible parties and recovering money from them.
This report details some of the progress made in cleaning up WQARF sites.
Further, it shows where the WQARF sites are in the cleanup process, the money
that the program has collected from potentially responsible parties, how much
money the program is spending on cleanup activities, and the appropriateness
of the program’s administrative costs (see Other Pertinent Information, pages 29
though 36).
􀁺􇨠 Solid Waste Inspections—A 1993 audit (Auditor General Report No. 93-8) found
that the Solid Waste Section had not met its goal of inspecting all active landfills
annually. Specifically, over one-third of active landfills had not been inspected in
1992. In addition, of those not inspected during 1992, nearly two-thirds had
gone more than 2 years between inspections.
Audit work conducted as part of this audit found that the Solid Waste Section
was still not meeting its annual inspection goal for active landfills. More than one-half
of the 37 landfills auditors reviewed had gone longer than 1 year since their
last inspection. Fifteen of these 37 landfills went more than 2 years since their
last inspection. Based on interviews with Solid Waste Section personnel,
auditors concluded that the primary reason the Division has not met the landfill
inspection goals is the time spent before the inspection creating and receiving
approval for facility-specific inspection checklists. The inspectors have been
spending considerable time creating these new checklists in order to perform
more thorough inspections. Division personnel stated that inspections at a
landfill are not conducted until the checklist is completed, reviewed, and
approved. Additionally, according to division management, during the audit, 14
of 35 staff positions in the Solid Waste Section were vacant because of funding
reductions. Four of these positions were in the Inspections and Compliance
Unit.1 Despite these reductions, the Division reported that it conducted 267
inspections of solid waste facilities in fiscal year 2003, and 41 of these were
landfill inspections.
The Solid Waste Section
is not meeting its goal to
inspect all active landfills
annually.
1 According to the Department, an additional position in the Inspections and Compliance Unit was abolished in April 2003
due to funding reductions.
Office of the Auditor General
page 5
State of Arizona
page 6
Budget and funding
As illustrated in Table 1 (see page 7), the Division received $33.3 million in fiscal year
2003. Of this, $19.8 million came from the Division’s portion of corporate income
taxes, water use taxes, fines and forfeits, and fees deposited into the Water Quality
Assurance Revolving Fund (WQARF), as well as monies from WQARF’s available
fund balance. An additional $4.5 million came from the State Assurance Fund for
costs including administration of the Fund and cleanup of leaking UST sites through
the state-lead program. Additionally, the Division received $4.2 million in federal
grants; $3.2 million in licenses, permits, and other fees; and $1.3 million in State
General Fund appropriations.
The Water Quality Assurance Revolving Fund is administered within the Division. As
illustrated in Table 2 (see page 8), WQARF received $15.5 million in fiscal year 2004.
Ten million dollars came from corporate income taxes, and $2.2 million came from
taxes assessed on businesses operating municipal water delivery systems.
Additionally, $1.5 million came from licenses, fees, and permits, while $1.6 million
came from cleanup costs recovered from parties for contamination cleaned up by
the WQARF program.
This audit also looked at the State Assurance Fund, which provides funding to help
UST owners and operators clean up contamination caused by leaking USTs. As
illustrated in Table 3 (see page 9), the State Assurance Fund received $29.3 million
in fiscal year 2004; $28.7 million of these revenues came from the $.01 excise tax on
USTs regulated by the Department, and approximately $630,000 came from
investment interest.
Scope and methodology
This audit focused on additional changes the Department could make to the State
Assurance Fund, the timeliness of the Division’s enforcement actions against
hazardous waste facilities, and the status of the WQARF program. This audit report
presents two findings and associated recommendations:
􀁺􇨠 Legislative changes have been made to the State Assurance Fund, but the
Department should take additional actions (see Finding 1, pages 11 through
19); and
􀁺􇩔 The Division should more quickly resolve enforcement actions against
hazardous waste facilities and their responsible parties (see Finding 2, pages 21
through 28).
Office of the Auditor General
page 7
Table 1: Waste Programs Division
Schedule of Revenues and Expenditures1
Years Ended June 30, 2002 and 2003
(Unaudited)
2002 2003
Revenues:
State General Fund appropriations $ 1,250,759 $ 1,335,701
Water Quality Assurance Revolving Fund 2 25,764,626 19,766,648
State Assurance Fund 3 5,100,706 4,498,121
Federal grants 4,428,573 4,218,803
Licenses, permits, and other fees 2,909,274 3,156,544
Interest 271,066 178,763
Miscellaneous 359,942 137,890
Total revenues 40,084,946 33,292,470
Expenditures:4
Personal services and related benefits 10,048,614 9,582,809
Professional and outside services 24,779,392 19,329,567
Travel 224,753 193,556
Aid to organizations 187,569
Other operating 708,832 457,678
Equipment 68,621 82,289
Allocated costs 4,248,734 4,193,937
Total expenditures 40,266,515 33,839,836
Excess of revenues (under) expenditures (181,569) (547,366)
Net operating transfers out 726,924 664,200
Excess of revenues and operating transfers in (under) expenditures
and operating transfers out 5 $ (908,493) $ (1,211,566)
1 This schedule presents revenues and expenditures of the Division’s operations. However, 2004 estimates are not
readily available because the Department’s budgets are based on its appropriated budget units and are not
consistent with the format of this schedule. In addition, the Northern and Southern Offices’ waste-related
expenditures are not included in this table because the Department does not allocate expenditures among its
divisions. These offices conduct water, waste, and air activities and have expenditures of approximately $4.1
million.
2 Primarily consists of the Division’s portion of corporate income taxes, water use taxes, fines and forfeits, and fees
deposited in the Water Quality Assurance Revolving Fund (WQARF), as well as its available fund balance. See
Table 2, page 8 for WQARF’s financial table.
3 Consists of the Division’s portion of underground storage tank contents taxes deposited in the State Assurance
Fund. See Table 3, page 9 for the State Assurance Fund’s financial table.
4 Includes administrative adjustments from the prior year.
5 The excess of revenues under expenditures was paid by the Division’s available fund balance.
Source: Auditor General staff analysis of the Arizona Financial Information System (AFIS) Accounting Event
Transaction File for the years ended June 30, 2002 and 2003.
State of Arizona
page 8
Table 2: Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
2002 2003 2004
Revenues:
Corporate income taxes 1 $ 5,000,000 $10,000,000 $10,000,000
Water use taxes 2 2,213,435 2,150,995 2,197,184
Licenses, fees, and permits 3 1,452,229 1,582,917 1,460,237
Fines and forfeits 4 778,299 3,492,112 1,633,482
Interest on investments 1,001,409 279,007 194,036
Other 43,417 5,400 9,078
Total revenues 10,488,789 17,510,431 15,494,017
Expenditures:5
Personal services and related benefits 3,536,331 3,186,440 3,526,784
Professional and outside services 21,156,559 16,494,581 12,270,212
Travel 93,370 95,228 94,419
Aid to individuals and organizations 178,956 11,589
Other operating 751,545 412,229 327,937
Equipment 22,679 28,119 66,858
Allocated costs 6 1,765,056 1,584,515 1,538,825
Total expenditures 27,504,496 21,801,112 17,836,624
Excess of revenues under expenditures (17,015,707) (4,290,681) (2,342,607)
Net operating transfers out 7 (1,371,503) (816,000) (2,885,107)
Excess of revenues and transfers in (under) expenditures
and transfers out (18,387,210) (5,106,681) (5,227,714)
Fund balance, beginning of year 33,222,404 14,835,194 9,728,513
Fund balance, end of year $14,835,194 $ 9,728,513 $ 4,500,799
1 Consists of corporate taxes transferred to the Department in accordance with A.R.S. §49-282; however, the statutory formula for
funding provided was temporarily suspended by Laws 2002, Chapter 328 and Laws 2003, Chapter 263, and the Department was
appropriated $5 million in 2002 and $10 million in 2003 and 2004.
2 Taxes are assessed on businesses operating municipal water delivery systems in accordance with A.R.S. §42-5302.
3 Includes fees for prospective purchaser agreements, water quality assurances, fertilizer licenses, and manifest resubmittals, and for
hazardous waste facility, hazardous waste resource recovery facility, industrial discharge, and pesticide registrations.
4 Consists of remedial action costs recovered from responsible parties.
5 Includes administrative adjustments from the prior year.
6 Amount is the portion of department-wide overhead expenditures allocated to the Water Quality Assurance Revolving Fund.
Examples include administrative personnel, rent, general accounting, telecommunications system, and risk management costs.
7 Consists primarily of transfers to the Department of Health Services, Department of Water Resources, and Attorney General’s Office
for WQARF-related activities. In addition, 2002 includes $167,779 of corporate taxes returned to the State General Fund, and 2004
includes a $2.5 million transfer from the Air Quality Fund and a $5 million transfer to the State General Fund, as required by Laws
2003, Chapter 262.
Source: Auditor General Staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File and Trial
Balance by Fund report for the years ended June 30, 2002, 2003, and 2004.
Office of the Auditor General
page 9
Table 3: State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
2002 2003 2004
Revenues:
Underground storage tank contents tax $ 27,819,119 $ 27,769,151 $28,651,812
Interest on investments 1,228,818 873,330 630,492
Other 59,604 99,911 55,130
Total revenues 29,107,541 28,742,392 29,337,434
Expenditures and operating transfers out:1
Personal services and related benefits 3,376,361 3,427,747 3,475,659
Professional and outside services 1,615,564 1,262,392 1,574,431
Travel 30,326 22,918 22,534
Aid to individuals and organizations 2 14,553,442 17,400,672 29,258,872
Other operating 230,464 166,220 158,358
Equipment 26,641 41,898 35,285
Allocated costs 3 1,685,752 1,688,338 1,711,414
Total expenditures 21,518,550 24,010,185 36,236,553
Operating transfers out 20,000 6,020,000 4 20,000
Total expenditures and operating transfers out 21,538,550 30,030,185 36,256,553
Excess of revenues and transfers in over (under) expenditures and
transfers out 7,568,991 (1,287,793) (6,919,119)
Fund balance, beginning of year 39,862,805 47,431,796 46,144,003
Fund balance, end of year $ 47,431,796 $ 46,144,003 $39,224,884 5
1 Includes administrative adjustments from the prior year.
2 Reimbursement for leaking underground storage tank cleanup costs to owners/operators.
3 Amount is the portion of department-wide overhead expenditures allocated to the State Assurance Fund. Examples include
administrative personnel, rent, general accounting, telecommunications system, and risk management costs.
4 Includes $6 million transferred to the State General Fund in accordance with Laws 2003, Chapter 1.
5 Amount is designated for payments to claimants for cleanup costs and program operating expenditures, except for $6 million that is
reserved for a long-term loan to the Regional Public Transportation Authority.
Source: Auditor General Staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File and Trial
Balance by Fund report for the years ended June 30, 2002, 2003, and 2004.
Various methods were used to study the issues addressed in this audit. General
methods used for all areas included interviews with department management and
staff, as well as interviews of representatives from two advisory bodies related to the
audit areas. Additionally, auditors obtained information from representatives of the
EPA and the Arizona Attorney General’s Office. Finally, auditors reviewed Arizona
Revised Statutes, the Arizona Administrative Code, the Code of Federal Regulations,
and the Department’s Compliance and Enforcement Handbook.
The following specific methods were used in reviewing each area:
􀁺􇨠 To determine whether there were any changes the Department should make to
the State Assurance Fund, auditors analyzed the changes made to the Fund by
Laws 2004, Chapter 273, which provided for the termination of fund eligibility in
2006 and for the termination of the Fund itself no later than 2013. Additionally,
auditors obtained information regarding the degree of compliance with UST
financial assurance requirements. Finally, an auditor attended meetings of key
UST stakeholders in which they addressed various issues related to the UST
program.
To determine the Fund’s financial status and the status of the claims processing
backlog in the SAF section, auditors obtained, validated, and analyzed data
from the State Assurance Fund, spanning from the Fund’s inception to January
2004.
􀁺􇩔 To determine whether the Hazardous Waste section has taken enforcement
actions in a timely manner, auditors obtained, validated, and analyzed data from
the Hazardous Waste Program’s two inspection, compliance, and enforcement
databases.1 Auditors also reviewed documentation for 127 enforcement actions
to determine whether the Department was meeting its responsibility regarding
the timeliness of issuing, escalating, and resolving enforcement actions.
Additionally, auditors attended two internal agency meetings regarding
compliance and enforcement, as well as two agency roundtables, one held with
the regulated community, and one with the environmental community.
􀁺􇨠 To obtain information on the Water Quality Assurance Revolving Fund, auditors
reviewed program documents regarding work done on sites within the WQARF
program.
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the director, division director,
and staff of the Department of Environmental Quality for their cooperation and
assistance throughout the audit.
State of Arizona
page 10
1 The two databases auditors obtained information from are ICE (Inspections, Compliance, and Enforcement) and the
Hazardous Waste Inspections database.
Office of the Auditor General
page 11
A minimum level of
financial assurance for
USTs is required.
Changes made to the State Assurance Fund, and
Department should take additional actions
The Legislature recently made some significant changes to the State Assurance
Fund (Fund), and the Department should take additional actions to increase
compliance with financial assurance requirements and to reduce costs to the Fund.
Created in 1990, the Fund provides owners and operators of leaking underground
storage tanks (USTs) with funding to clean up contaminated sites. In May 2004, the
Legislature made several important changes to the Fund, including ending eligibility
for the Fund in 2006 and creating a Regulated Substance Fund to succeed the State
Assurance Fund. The Regulated Substance Fund will provide coverage for leaking
USTs whose owners cannot be located, and is slated to receive up to $60 million in
transfers from the State Assurance Fund for this purpose.
However, the Regulated Substance Fund may not receive the entire $60 million if
paying all claims to the Fund requires additional time beyond July 1, 2011. The
Department should take further action to ensure that UST owners comply with federal
and state financial assurance requirements. Finally, the Department should make
some changes to reduce costs to the Fund.
Fund provides coverage for leaking USTs
The Legislature created the Fund in 1990 to help UST owners and operators meet
federal and state requirements for financial responsibility. These regulations require
that UST owners and operators acquire a minimum level of financial assurance to
cover costs associated with the cleanup of leaking USTs. UST owners and operators
are required to have at least $500,000 of coverage for each UST leak, and $1 million
of coverage for individual leaks on tanks meeting certain location and size
requirements. UST facilities must also have annual aggregate coverage, a minimum
level of coverage for the total amount of cleanup needed in a 1-year period. For
facilities with 100 or fewer USTs, at least $1 million in annual aggregate coverage is
FINDING 1
State of Arizona
page 12
1 The legislation became effective August 25, 2004.
required, while facilities with more than 100 USTs must have at least $2 million in
annual aggregate coverage. These coverage amounts include both cleanup costs
and third-party liability. The Fund partially fulfills these requirements by providing
qualifying owners of leaking USTs up to $500,000 per leak, or $1 million in certain
instances. However, the Fund does not provide third-party liability coverage,
including damage caused to another owner’s property due to a UST leak.
Although this assurance could normally be provided through private insurance, in the
late 1980s private insurance became less available as insurers declined to continue
writing policies. The Fund was intended to help fill the gap created by declining
insurance availability. However, insurance is currently available and affordable, and
most UST owners and operators who are in compliance with financial assurance
requirements have private UST insurance. Other ways to meet this requirement
include self-insurance and a surety bond.
The Fund’s revenue is provided by an excise tax of $.01 per gallon on most regulated
underground storage tanks (USTs), based on the quantity of regulated substances
placed in a tank in any calendar year. The Arizona Department of Transportation
(ADOT) collects this excise tax from owners and operators of Arizona USTs and
transfers it, less an administrative fee, to the Fund. In fiscal year 2003, fund revenues
totaled approximately $29 million.
The State also uses the Fund to pay for its state-lead program. The state-lead
program cleans up contaminated orphan sites, which are sites whose owner cannot
be located, because, for example, the owner is deceased. The state-lead program
also takes cleanup responsibility for sites whose owners do not have the financial
capacity to pay for the cleanup or are unwilling to do so. If an owner is unwilling to
pay for cleanup, the state-lead program will perform the cleanup and then attempt to
recover the costs.
Recent legislation significantly changed the Fund
In May 2004, Laws 2004, Chapter 273 was enacted, which made several important
changes to the Fund.1 Specifically, the legislation provided that UST owners and
operators can use the Fund for cleanup coverage before accessing their private
financial assurance. Additionally, the legislation set an eligibility end date of June 30,
2006. After this date, UST releases are no longer eligible for coverage from the Fund.
Further, the legislation set a termination date for the Fund itself, as well as the excise
tax that funds it. Finally, the legislation created a Regulated Substance Fund to begin
operation after the State Assurance Fund is terminated. The Regulated Substance
Fund will provide for the cleanup of USTs whose owners cannot be located or are
financially unable to provide for cleanup.
Office of the Auditor General
page 13
UST leaks reported after
June 30, 2006, are
ineligible for fund
coverage.
1 Prior to Laws 2004, Chapter 273, UST owners and operators who met their financial assurance requirements through
methods other than private UST insurance, such as companies that used self-insurance, were not required to use their
own financial assurance before accessing the Fund.
Fund now pays for cleanup before insurance—The May 2004 legislation
now allows UST owners and operators to access the Fund before submitting claims
to their insurance. Prior to Laws 2004, Chapter 273, UST owners and operators who
had private UST insurance were required to file a claim with their insurance carrier
before they could access the Fund.1 However, this legislation changed that
requirement to allow owners and operators who use private insurance to meet
financial assurance requirements to access the Fund for coverage up to $500,000
before they file a claim with their insurance carrier. Further, this modification is
retroactive to December 31, 2002. Consequently, owners and operators can now
reapply for fund coverage if their fund application was denied on or after December
31, 2002, because of failure to first file a claim with their private insurance.
Although recent legislation now allows owners and operators to access the Fund
prior to filing a claim with their insurance carrier, some owners and operators can
receive additional monies from the Fund if they file a claim with their insurance carrier
first. If owners and operators access the Fund first, they can only receive fund
coverage up to $500,000 and then need to rely on their insurance, which, according
to a department representative, normally provides another $1 million of coverage. If
the cost of cleaning up their contaminated site exceeds $1.5 million—which is the
combined coverage provided by the Fund and the insurance—the owner becomes
responsible for paying the additional costs. However, owners and operators are
eligible for up to a total of $1 million of fund coverage if they exhaust any financial
assurance they possess before attempting to access the Fund, which provides them
with at least $2 million in combined coverage.
Eligibility for the Fund ended—In addition to allowing UST owners and
operators to access the Fund before filing a claim with their own private insurance,
Laws 2004, Chapter 273 set June 30, 2006, as the final day that UST leaks can be
reported to the Department and still be eligible for cleanup coverage from the Fund.
Owners and operators of leaking USTs will need to access their alternative financial
assurance mechanism, such as private UST insurance, after that date. However,
those who report releases before the eligibility end date will be given additional time
to submit applications for coverage. For example, an application for pre-approval of
cleanup costs must be submitted by June 30, 2009. Applications for direct payments
of pre-approved costs and for reimbursement of cleanup costs must be submitted
by June 30, 2010. After this date, any application made, or expense incurred, related
to cleanup of a leaking UST will not be eligible for coverage.
Regulated Substance Fund to replace State Assurance Fund—Laws
2004, Chapter 273 also created the Regulated Substance Fund, which will succeed
the State Assurance Fund. The legislation did not create either an eligibility deadline
State of Arizona
page 14
or a termination date for the Regulated Substance Fund. The Regulated Substance
Fund will have two primary uses. First, it will pay for cleanup of releases from leaking
USTs called “orphan tanks,” whose owner or operator cannot be located within 90
days of the release. As mentioned previously, right now the Department handles
cleanup of orphan tanks through its state-lead program. Second, it will provide for
cleanup at any leaking UST site where monitored natural attenuation has been
approved by the Department as a cleanup technique before July 1, 2010.
Cleanups using monitored natural attenuation will be paid for through a separate
section of the Regulated Substance Fund called the Monitored Natural
Attenuation (MNA) account.
For the cleanup of leaking orphan tanks, the Regulated Substance Fund can
receive revenue from three sources. The first source is a transfer from the State
Assurance Fund. On July 1, 2011, the Department’s director is required to transfer
to the Regulated Substances Fund all monies remaining in the State Assurance Fund
if all of its eligible claims have been paid. A possible second source is the $.01 per
gallon excise tax. If the amount transferred to the Regulated Substance Fund is less
than $60 million, it will receive revenue from the excise tax until it reaches $60 million,
or until the excise tax expires on December 31, 2013.1 The Fund is statutorily limited
to receiving no more than a total of $60 million in revenues from the State Assurance
Fund transfer and the excise tax.2 The third source is an amount equal to co-pays
made by people who volunteer to clean up leaking USTs.3 This amount will go into
the State Assurance Fund, but will be tracked by the Department. If the State
Assurance Fund has more than $60 million when all eligible claims have been paid,
then this amount can also be transferred to the Regulated Substance Fund.
The Fund’s MNA account will receive funding through a different source. The MNA
account will be funded by monies set aside by the Department’s Director from the
State Assurance Fund on or before June 30, 2011. The monies in the MNA account
are separate from monies in the Regulated Substance Fund for the cleanup of
orphan tanks. Therefore, monies set aside for funding cleanups using monitored
natural attenuation cannot be used to cleanup orphan tanks.
Monies available for orphan tank cleanup may be limited—Although the
Regulated Substance Fund’s revenues for the cleanup of orphan tanks may be in
excess of $60 million, it could receive far less than this amount. As stated above, the
legislation allows the director to transfer funds from the State Assurance Fund to the
Regulated Substance Fund on July 1, 2011, only if all eligible applications to the State
Assurance Fund have been paid. However, according to a department official,
paying all the applications may require additional time beyond July 1, 2011. For
1 However, the State Assurance Fund and the excise tax end on December 31, 2013, even if the Regulated Substance
Fund has not yet reached $60 million.
2 If the State Assurance Fund has more than $60 million at the time of the transfer, the amount beyond $60 million will go
to the State’s General Fund.
3 However, Laws 2004, Chapter 273 provides that a volunteer’s co-pay is waived if the value of the property where the
leaking tank is located is less than the volunteer’s 10 percent co-pay.
Monitored natural attenuation is
the use of natural processes,
such as chemical breakdown by
microorganisms, to clean up
contamination at a UST site.
Office of the Auditor General
page 15
A report on the Fund’s
anticipated liability is
required by September
1, 2009.
example, additional time may be required if the State Assurance Fund sees a
significant number of groundwater contamination claims. According to the
department official, groundwater contamination generally takes longer to address
than contamination of soil. If additional time is needed to pay these claims, the State
Assurance Fund will continue to receive monies from the excise tax until all of its
claims are paid. This would limit the amount of excise tax revenues the Regulated
Substance Fund would receive since the excise tax will expire no later than
December 31, 2013, regardless of whether the Regulated Substance Fund has
reached $60 million.
In fact, the Regulated Substance Fund could potentially receive no funding at all for
orphan tank cleanup. By law, the State Assurance Fund will be terminated when all
of its claims are paid, and the Regulated Substance Fund receives $60 million from
any combination of a transfer from the State Assurance Fund and excise tax
revenues. However, if any State Assurance Fund claims remain unpaid as of
December 31, 2013, then the State Assurance Fund will terminate without the
Regulated Substance Fund receiving either a transfer of funds or any excise tax
revenues. Additionally, this would result in some approved cleanups of UST leaks
that will not receive their full funding.
This possible lack of funding could be averted. Laws 2004, Chapter 273 requires that
the Department’s director submit a report on the State Assurance Fund’s anticipated
liability to the President of the Senate and the Speaker of the House by September
1, 2009. If this report finds that the liabilities to the Fund will likely prevent the director
from transferring monies to the Regulated Substance Fund in July 2011, the
Legislature could consider extending the excise tax beyond December 31, 2013, so
that the Regulated Substance Fund revenues could reach $60 million.
Additionally, according to a department official, if the Regulated Substance Fund
does not receive adequate funding to perform orphan tank cleanup, the Department
will monitor contaminated orphan sites to assess whether they pose a threat to
human health. If the contamination at the sites does pose a threat to human health
and necessary cleanup funds from the Regulated Substance Fund are unavailable,
the Department may begin active cleanup using funds from the Water Quality
Assurance Fund (WQARF). Agency officials have indicated that WQARF funds would
be used as a last resort.
Greater compliance needed when Fund eligibility ends
To ensure compliance with financial assurance requirements, the Department should
continue to take steps to strengthen its compliance efforts, including taking formal
enforcement actions as necessary. Currently, tank owners and operators have a
relatively low rate of compliance with financial assurance requirements. Compliance
State of Arizona
page 16
with financial assurance regulations will become even more important as eligibility for
the State Assurance Fund ends.
Full compliance with financial assurance requirements has not been
achieved—Although required by federal and state regulations, many UST facilities
do not comply with financial assurance requirements. As mentioned previously,
current federal and state regulations require that UST owners acquire at least
$500,000 and up to $1 million of financial assurance to cover costs associated with
a UST leak. However, according to the Department, as of January 2004, only 62
percent of UST facilities were in compliance with federal and state financial
assurance requirements.
There are two primary reasons why compliance with the financial assurance
regulations is low. First, according to a department representative, prior to October
2003, the Department did not enforce compliance with financial assurance
requirements unless a noncompliant facility became the subject of another
enforcement action. The Department reports that limited resources hampered its
ability to take timely enforcement action against these facilities, and instead it
prioritized enforcing UST regulations and assisting UST owners and operators in
complying with these regulations. Second, according to this representative, the
compliance rate is low because some owners and operators erroneously think that
the Fund fully covers their financial assurance requirements. However, owners and
operators who must provide $1 million in financial assurance, but who only qualify for
$500,000 in coverage from the Fund, are responsible for providing another $500,000
in additional financial assurance through some other means, such as private
insurance or self-insurance. Also, as mentioned previously, the Fund does not cover
third-party liability.
Consequences of noncompliance with financial assurance
requirements—The lack of compliance with financial assurance requirements
could have financial repercussions for the State. When eligibility for the Fund ends,
owners and operators who do not maintain the required level of financial assurance
may not have the financial ability to clean up leaking USTs. As a result, the State may
be liable for the future cleanup of these additional contaminated sites through either
the Department’s state-lead program or the Regulated Substances Fund. As
eligibility for the Fund is ending, the State can reduce its potential future liability by
ensuring that all UST owners and operators meet financial assurance requirements.
Steps recently taken to increase compliance with financial
assurance requirements—The Department has recently taken steps to reduce
this potential for liability to the Fund by enacting a more proactive approach to
ensuring compliance with financial assurance requirements. At the June 2003 UST
Conference, the Department announced a renewed enforcement effort to ensure
compliance with financial responsibility requirements. According to the Department,
this announcement was followed by a postcard sent to all owners and operators
The State can reduce its
potential future liability
by ensuring compliance
with financial assurance
requirements.
Office of the Auditor General
page 17
outlining the requirements. In addition, in the fiscal year 2005 budget, the Legislature
at the Department’s request made funding available for two inspectors and an
administrative assistant who will address inspections and compliance needs at UST
facilities throughout the State, including enforcing financial responsibility
requirements. Since October 2003, the Department reports having sent a letter to all
owners and operators whose facilities had been out of compliance for more than 90
days and whose addresses were known. The Department also updated its database
with new addresses as they were identified. As of June 2004, 437 of 497
noncompliant owners and operators (88 percent) had received a letter from the
Department informing them of their status and reminding them of their need to attain
compliance. Also, in October 2003, the Department began a policy of mailing
enforcement actions to owners and operators of noncompliant facilities. The
Department believes this approach has resulted in an increase in the compliance
rate from 52 percent of UST facilities in October 2003 to 62 percent in January 2004.
Additionally, in April 2004, the Department began performing complete inspections
of those facilities that did not comply with their financial assurance requirements after
having received a reminder letter. The Department should continue to work on
increasing compliance with financial assurance requirements, including pursuing
formal enforcement actions, such as consent orders and compliance orders, as
necessary.
Fund costs could be reduced
While the Department continues to pay claims from the State Assurance Fund, it
could take steps to reduce costs incurred by the Fund. First, it should reassess
the cost ceilings used for payment of cleanup costs. Second, it should
examine the feasibility of using the competitive bidding model the state-lead
program uses.
High cost ceilings should be reassessed—Some UST stakeholders
believe that the cost ceilings are too high. The cleanup of leaking UST sites is
typically performed by private consultants hired by the owner or operator, or
by a fund volunteer. These consultants bill the Fund for the cleanup work that
is performed, but there are limits, called cost ceilings, on the amount that consultants
can bill the Fund for various cleanup activities. However, key UST stakeholders
convened by the director believe that cleanup costs are inflated to the point that the
cost ceilings are no longer the upper limit, but have become the going price of the
cleanup work. The Department should assess the cleanup costs charged to the
Fund to see if contractors are routinely charging at the cost ceilings. If so, the
Department should consider revising its cost ceilings to better reflect the true cost of
cleanup work.
Cost ceilings—The
maximum cost that the
State Assurance Fund will
pay for activities related to
the cleanup of leaking
USTs.
Some stakeholders
believe that cost
ceilings are used as
the actual price of
cleanup work.
State of Arizona
page 18
Additionally, according to fund management, fund cost ceilings themselves are
higher than they should be because a flawed method was used to create them. The
cost ceilings are based on a 2000 cost survey of various consultants in the field of
UST cleanup, and are adjusted for inflation in the intervening years before the next
cost survey is conducted. However, in the 2000 survey, respondents were allowed to
answer questions that did not pertain to their occupation, and this may have resulted
in an inaccurate estimate of the true costs for particular activities. For example, tank
installers were allowed to answer questions about lab testing costs, which they were
unfamiliar with. Further, the Fund pays some general business costs that appear to
be unreasonably high. For example:
􀁺􇩉 In 2004, the Fund can pay up to $2 per mile for a cleanup consultant’s travel
costs.
􀁺􇩉 In 2004, the Fund can pay up to $47 per hour for clerical and support work done
by a cleanup consultant’s administrative assistant.
The Department will be creating new cost ceilings for use beginning in July 2005.
However, according to a fund official, the Department has not yet decided whether it
will perform a new cost survey to create the cost ceilings, or whether it will simply
update the 2004 cost ceilings with information from the Bureau of Labor Statistics. If
the Department performs a new cost survey, it should be careful to ensure that it
uses an appropriate methodology and does not allow respondents to answer
questions that do not pertain to their occupation.
Competitive bidding may be an option—Another possible way of reducing
costs is by implementing competitive bidding. This would require owners and
operators to solicit multiple bids for cleaning up a contaminated UST site. By
instituting competitive bidding, the Department would likely be able to use the market
to control costs rather than relying on a cost ceilings that need to be updated.
Arizona’s UST owners and operators are not required to solicit bids from cleanup
consultants before choosing one to clean up a contaminated site. However, the
Department’s UST state-lead program uses competitive bidding for its projects and
reports costs at approximately 60 percent of the cost ceilings. Requiring competitive
bidding for all owners and operators would require a statutory change. The
Department should examine the feasibility of instituting competitive bidding as a
possible method of controlling costs incurred by the State Assurance Fund.
Recommendations
1. The Department should continue to work on increasing compliance with
financial assurance requirements, including pursuing formal enforcement
actions, such as consent orders and compliance orders, as necessary.
2. The Department should assess the cleanup costs charged to the State
Assurance Fund to see if cost ceilings are being treated as the actual price of
cleanup costs rather than as an upper limit for costs.
3. If contractors are routinely charging at the cost ceilings for certain cleanup
activities, the Department should consider revising cost ceilings to better reflect
the true cost of cleanup work.
4. If the Department performs a cost survey to create the cost ceilings that will be
effective beginning in July 2005, it should use an appropriate methodology and
not allow respondents to answer questions that do not pertain to their
occupation.
5. The Department should examine the feasibility of instituting competitive bidding
as a method of controlling State Assurance Fund costs.
Office of the Auditor General
page 19
State of Arizona
page 20
Office of the Auditor General
page 21
Division should improve its hazardous waste
enforcement efforts
The Waste Programs Division (Division) should more quickly issue, escalate, and
resolve enforcement actions against hazardous waste facilities and their responsible
parties that are out of compliance with standards. The Division is responsible for
ensuring that all hazardous waste in Arizona is stored, transported, and disposed of
properly. It is important for hazardous waste to be managed properly because it can
represent a significant public health threat. However, the Division sometimes takes
several months to issue an enforcement action when it finds a violation. Although the
Division informs the facility of serious violations in writing at the time of the inspection,
the Division does not do so for less serious violations. Further, it does not always
escalate enforcement actions when responsible parties do not correct their violations
and return to compliance. To improve in this area, the Division should take several
steps. First, it should streamline the approval process for issuing the enforcement
actions resulting from major violations. In addition, it should better track the status of
its enforcement actions. Finally, it should escalate enforcement actions to the next
level as necessary against responsible parties that have not corrected their violations.
Division regulates through inspections and enforcement
actions
The Hazardous Waste Section of the Division is responsible for regulating hazardous
waste facilities, including those facilities that generate, treat, store, or dispose of
these types of materials. The Division regulates these facilities by issuing permits,
conducting periodic inspections, and taking enforcement action when a violation is
identified.
The Division classifies violations identified during inspections as either major or
minor. Major violations are those that pose risk to human health and the environment.
An example of a major violation is a responsible party’s failure to correctly identify
FINDING 2
Major violations pose
risk to human health
and the environment.
State of Arizona
page 22
waste it produces and ships off-site for disposal, which could result in hazardous
substances being improperly disposed of and possibly entering the environment. In
contrast, minor violations are those that pose a minimal risk to human health and the
environment, such as responsible party’s failure to pay a hazardous waste fee. For
minor violations, the Division may take an informal enforcement action. For example,
the Division may send the responsible party a “Notice of Opportunity to Correct”
(NOC), which explains the violation and the action the responsible party needs to
take to verify return to compliance.
In contrast, for a major violation, the Division may take either an informal or a formal
enforcement action, such as issuing a Notice of Violation (NOV), or an administrative
Enforcement Actions
Informal Actions:
Notice of Opportunity to Correct Deficiencies (NOC)—Puts the responsible party on notice that the
Division believes a nonsignificant violation of an environmental law has occurred.
Notice of Violation (NOV)—Puts the responsible party on notice that the Division believes a
significant violation of environmental law has occurred.
Formal Actions:
Administrative Order—Orders entered into between the Department1 and the responsible party.
􀁺􇩃 Compliance Order—A unilateral order issued by the Department1 without input from the
responsible party. It is an appealable action.
􀁺􇩃 Consent Order—A bilateral written order issued with the complete agreement of the responsible
party and the Department.1 It is not an appealable action.
􀁺􇩌 License Suspension/Revocation—Suspension or revocation of a responsible party’s license for a
specified period of time. It can be issued bilaterally or unilaterally. If issued unilaterally, it can
be appealed.
Civil Referral—Referred by the Department to the Attorney General’s Office1:
􀁺􇩔 Temporary Restraining Order/Preliminary Injunction
􀁺􇩐 Permanent Injunction/Civil Penalty
􀁺􇩃 Consent Judgment/Consent Decree—A negotiated settlement of a civil complaint
Criminal Referral—The State’s authority for prosecution of environmental crimes lies exclusively with
the Attorney General’s Office, but the Department assists by gathering evidence.
1 Although signed by the division director, this enforcement action requires department director approval before it is
issued to the responsible party.
Source: Auditor General staff summary of the Department’s Compliance and Enforcement Handbook.
Office of the Auditor General
page 23
order, or referring the action to the Attorney General’s Office for civil or criminal action.
The enforcement process also requires the inspector to follow up to ensure the
responsible party corrects the violation and returns to compliance. If a responsible
party has not corrected the violation within the specified time frame, division policy
recommends that it escalate the enforcement action. For example, if the Department
issued an NOV for the violation, the Division could escalate the action to an
administrative order, and then to a referral for a civil action. In each case, the
enforcement action taken by the Division depends on the severity of the violation and
is not necessarily issued in order of the actions listed on page 20. For example, for
relatively minor violations, the Division could choose to issue an NOC or an NOV, and
if the responsible party does not correct the violations in a timely manner, the Division
could escalate the action to any one of the formal actions. In contrast, for more
serious violations, the Division could choose to issue a formal enforcement action
without first issuing an informal action. As shown on the list of enforcement actions
on page 20, this formal action could be either an administrative order, a civil referral,
or a criminal referral.
Division should improve enforcement timeliness
The Division should improve the timeliness of issuing enforcement actions. For many
cases from July 1, 2000, to November 30, 2003, the Division failed to issue
enforcement actions within its policy of 45 days after it identified the violation, and
some actions took longer than 90 days. While the Division’s timeliness of issuing
informal enforcement actions improved in fiscal year 2003 compared to fiscal year
2002, it was worsening in the first half of fiscal year 2004. Some of the more recent
delays may be attributable to recent changes in division policy, one of which requires
that more people approve issuing such actions.
Division should issue enforcement actions more quickly—The Division
should review and issue its enforcement actions more quickly, to help responsible
parties return to compliance as quickly as possible and minimize the risk to human
health and the environment. The Department’s policy requires the Division to send
the NOC or NOV to the responsible parties within 45 calendar days of the inspection
during which the violation was identified. However, as illustrated by Table 4 (see page
24), the Division does not always meet this goal. For example, between July 1 and
November 30, 2003, the Division issued only 26 percent of its NOCs and NOVs within
the prescribed 45 calendar days. Further, the Division has taken longer than 90 days
to issue some enforcement actions. For example, between July 1 and November 30,
2003, the Division issued 23 percent of its NOCs and NOVs after 90 days. Although
the Division immediately notifies the facility of serious violations and the requirements
to correct those violations at the time of the inspection through an Exit Debriefing
Form, this briefing is not as detailed and inclusive as the official enforcement action.
Further, the responsible party may be unaware of the details for compliance
regarding less serious violations. Consequently, the responsible party may remain
out of compliance longer.
State of Arizona
page 24
Recent changes to review process may contribute to delays—The
Department recently changed its process for reviewing and approving NOVs by
requiring division director approval. As of February 2003, most NOVs that result from
major violations must be reviewed by two additional people. Additionally,
enforcement actions are usually routed back to the originator for finalization before it
is sent to the responsible party.
Further, no specific time frames are given to each person in the routing process to
review and approve the enforcement action. Not only are more people required to
review and approve these enforcement actions, but because there is no individual
time frame guidance the enforcement action can sit on each person’s desk for a
week or longer. The combination of more people in the process and no individual
time frame guidance can negatively impact the issuance of enforcement actions.
Therefore, the Division should explore ways to streamline its review and approval
process for enforcement actions. For example, it should examine the process and
eliminate any steps that are not necessary. In addition, it should consider developing
specific time frames for each step in the review and approval process.
Table 4: Hazardous Waste Section
Timeliness of Issuing Informal Enforcement Actions
Fiscal Years 2001 through 2004
Number Issued
Fiscal
Year
Type
Total
Issued
Within 45
Calendar Days
Between 46 and 90
Calendar Days
Beyond 90
Calendar Days
2001 NOC 13 5 3 5
NOV 17 7 5 5
Total 30 12 8 10
2002 NOC 10 2 6 2
NOV 63 19 24 20
Total 73 21 30 22
2003 NOC 7 5 1 1
NOV 49 25 18 6
Total 56 30 19 7
20041 NOC 22 7 10 5
NOV 21 4 12 5
Total 43 11 22 10
1 Statistics presented are from July 1, 2003 through November 30, 2003.
NOC = Notice of Opportunity to Correct Deficiencies
NOV = Notice of Violation
Source: Auditor General staff analysis of the Division’s inspections database (Paradox) and the Inspections,
Compliance, and Enforcement (ICE) database.
Office of the Auditor General
page 25
Division should ensure facilities correct violations
According to department management, compliance is the ultimate goal for the
Division. To help achieve this goal, the Division frequently establishes a more
aggressive return-to-compliance time frame requirement for violators than provided
for in the Department’s Compliance and Enforcement Handbook. Once the Division
has issued an enforcement action, however, it does not always ensure that the
responsible party returns to compliance within the time frame specified in the action.
Also, when responsible parties exceed these prescribed time frames, the Division
does not always escalate the enforcement actions according to its policies.
Improvements in tracking enforcement actions could help remedy this situation.
Some facilities do not return to compliance in a timely manner—Some
responsible parties that the Division has taken an informal enforcement action
against do not return to compliance in a timely manner. According to division policy,
a responsible party receiving an NOC should return to compliance within 180 days,
and a responsible party receiving an NOV should return to compliance within 120
days.1 The Division can—and usually does—direct responsible parties to correct
violations in a much shorter time frame. Auditors examined 99 enforcement actions
issued in fiscal years 2003 and 2004 and found the Division directed the responsible
parties to come into compliance in 5 to 90 days, with the most frequent time frame
being 30 days. As Table 5 (see page 26) shows, 35 of the 99 (35 percent) responsible
parties issued enforcement actions from July 1, 2002 through November 30, 2003,
did not return to compliance within these shortened time frames specified in the
actions. In some instances, it has taken more than a year for the responsible party to
return to compliance. For example, there were six cases from fiscal years 2001 and
2002 that were still open as of November 30, 2003.
In addition to not ensuring that all informal enforcement actions are resolved in a
timely manner, the Division may not ensure that all formal enforcement actions are
resolved in a timely manner. In contrast to informal actions, which usually involve
violations posing less risk to humans and the environment, formal enforcement
actions usually deal with significantly higher risk that can involve hazardous waste
cleanup. Similar to the informal actions, formal actions also have specified time
frames to guide resolution; however, the time frames are specific to each action. One
type of formal action is an administrative order. Auditors reviewed the files for 3 of the
12 administrative orders issued in fiscal year 2003. In two of the three cases, the
responsible party failed to meet the Division’s initial compliance requirements, even
after repeated assistance from division staff. Further, both of these administrative
orders resulted from violations identified during inspections years ago—1994 and
1995 inspections, respectively.
1 According to division policy, once a facility has missed the RTC time frames set in the NOV, the Division will contact the
responsible party to discuss their options for demonstrating RTC. Policy calls for the inspector to state that one of three
options must occur within the next 45 days or a compliance order will be issued: 1) send proof to the Division that they
have returned to compliance, 2) take the appropriate steps to return to compliance within the 45 days and then notify the
Division, or 3) enter into a consent order when an extension can be negotiated between both parties.
The Division gives the
majority of responsible
parties 30 days to return
to compliance.
State of Arizona
page 26
Enforcement actions not always escalated—When responsible parties do
not return to compliance in a timely manner, the Division does not always escalate
enforcement actions to the next level as called for by policy. According to division
policy, a responsible party’s enforcement action, such as an NOC or NOV, should be
escalated to the next level if the responsible party does not correct its violation(s)
within the specified time frames. For example, if a responsible party received an NOC
and did not correct the violation within the time frame, the Division should then issue
the responsible party an NOV. However, according to the Division’s database, as of
November 30, 2003, the Division had not escalated any of the 35 informal
enforcement actions auditors reviewed where the facilities had not come into
compliance within the specified time frames.1 Department management indicated it
has limited resources to pursue enforcement actions, and evaluates each case
independently to determine the most efficient and effective manner in which to
proceed.
Similar to informal enforcement actions, division policy also calls for the escalation of
formal enforcement actions if the responsible party does not correct the violation
within the specified time frame. For example, an administrative order could be
escalated to a civil action. However, the Division may not always escalate its formal
The Division does not
always escalate
enforcement actions as
called for by policy.
1 According to Table 5, the 35 cases is a total of the enforcement actions for fiscal year 2003 and 2004 from the column
“Number Closed but Exceeded Designated Time Frame” and those from the column “Number Still Open and Exceeding
Designated Time Frame.”
Table 5: Hazardous Waste Section
Status of Informal Enforcement Actions
Fiscal Years 2003 and 2004
Fiscal
Year
Type
Number
Issued
Number Closed
Within Designated
Time Frame
Number Closed but
Exceeded Designated
Time Frame
Number Still Open
and Exceeding Designated
Time Frame
2003 NOC 7 4 3 0
NOV 49 33 9 7
Total 56 37 12 7
2004 1
NOC
22 1
11
6
3
NOV 21 1 5 3 4
Total 43 16 9 7
1 Statistics presented are from July 1, 2003 through November 30, 2003; for two NOCs and nine NOVs, the designated time frame had not
yet elapsed.
NOC = Notice of Opportunity to Correct Deficiencies
NOV = Notice of Violation
Source: Auditor General staff analysis of the Division’s inspections database (Paradox) and the Inspections, Compliance, and Enforcement
(ICE) database.
Office of the Auditor General
page 27
enforcement actions. Of the three administrative orders reviewed by auditors, all
issued in fiscal year 2003, the Division did not escalate one of them as specified by
policy. According to the Division, instead of escalating enforcement of this
administrative order, it continued to negotiate with the facility to bring it into
compliance. Further, the Division can send formal enforcement actions to the
Attorney General’s Office for resolution. However, the Division has managed several
formal enforcement actions itself instead of referring them to the Attorney General’s
Office for a civil lawsuit to be filed. According to the Department, if the negotiation
succeeds in returning a responsible party to compliance, then the referral to the
Attorney General’s Office is to obtain an appropriate civil penalty.
Computer system enhancements could improve enforcement
monitoring—One reason why the Division may not escalate enforcement actions
is that management and inspectors currently monitor the status of all enforcement
actions manually, which does not easily allow them to know which actions need to
be escalated. Although each inspector tracks his/her own inspection and
enforcement activity and submits a monthly report to the unit manager, there is no
system in place for the inspectors or management to easily view the status of the
enforcement actions and whether they have been resolved or not. Additionally,
according to management, staff turnover in the Hazardous Waste Section has
contributed to slow resolution of enforcement actions, since it often takes a new
inspector up to one year to become familiar with the Division’s policies and
procedures regarding the enforcement process.
To better monitor the status of all enforcement actions, the Division should modify its
new computer system to allow for the easy generation of management reports. In
February 2002, the Department implemented a new computer system to manage its
inspection and enforcement data. During the audit, the Department agreed that an
enforcement action tracking report would be a valuable tool and it reported that it
began implementation of this report on February 6, 2004. However, this report will
only assist management in tracking return-to-compliance time frames. It does not
include any enforcement actions that are in the review process. An additional report
should be generated to track these cases so management can monitor the
timeliness of issuing enforcement actions.
Recommendations
1. To more quickly notify responsible parties about violations identified during
inspections, the Division should explore ways to streamline its review and
approval process for enforcement actions.
2. The Division should consider setting in policy specific time frames for each step
in the enforcement action review and approval process.
3. The Division should escalate both informal and formal enforcement actions to
the next level as necessary against responsible parties that have not corrected
their violations.
4. The Division should modify its computer system to allow for the generation of a
management report to track the status of enforcement actions that are in the
review process, and should use this report to monitor the timeliness of issuing
these enforcement actions.
State of Arizona
page 28
During the audit, auditors gathered information about the status of cleanup efforts
within the State’s Water Quality Assurance Revolving Fund (WQARF) program, also
known as the State Superfund program. Auditors reviewed division information on
the progress of investigations and cleanup work at all WQARF sites, status in
identifying parties responsible for contamination, and how much money the
Department has recovered from those it has identified as responsible. Lastly, auditors
examined how the Department calculated the program’s administrative costs as a
result of new legislative requirements.
Superfund programs in Arizona
In Arizona, cleaning up sites contaminated by hazardous substances is managed by
both federal and state agencies. At the federal level, the Environmental Protection
Agency oversees cleanup under the authority of the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) or, in certain cases, by the
Resource Conservation and Recovery Act (RCRA). WQARF is the state program
responsible for identifying, assessing, and cleaning up soil and groundwater
contaminated with hazardous substances. In many respects WQARF and CERCLA
are similar, but reforms in 1997 substantially changed several key aspects of WQARF.
The beginnings of the Superfund—Congress passed CERCLA, also known as
the Superfund, in 1980 in response to the discovery of numerous hazardous waste
dump sites that were threatening human health and contaminating the environment.
One of the most famous of these is Love Canal in Niagara Falls, New York, where an
elementary school and housing development were built on top of an abandoned
chemical dump. Over time, chemicals began leaking into the groundwater and
seeping above ground, resulting in noxious fumes and concerns about birth defects,
miscarriages, and other health problems increasing among affected residents. When
Love Canal became a national issue in 1978, the only viable way the federal
government could deal with the problem was to declare the site a federal disaster
area. As Love Canal and other hazardous waste sites became more visible,
Congress passed CERCLA to give the Environmental Protection Agency more power
to deal with these problems. This power includes identifying sites where hazardous
Office of the Auditor General
OTHER PERTINENT
INFORMATION
page 29
Congress created the
Superfund program in
1980.
State of Arizona
page 30
waste releases have occurred, the ability to take appropriate action to remedy
releases, and to force parties responsible for a release to pay for cleanup.
State efforts to clean up contaminated sites—In 1986, the Legislature
created WQARF, the state equivalent of the federal superfund program. However,
dissatisfaction with the liability standards, cleanup goals, and the cost and slow pace
of cleanup prompted the formation of a task force in 1995 to seek changes in the
program. In 1997, the Legislature enacted reforms that changed several major parts
of the WQARF program:
􀁺􇩄 Dedicated funding—The first reform dedicated $18 million to the program
annually, which come from a mix of various appropriations and transfers from
state revenue sources. A.R.S. §49-282 stipulates that WQARF receive an annual
$15 million transfer from the Corporate Income Tax (CIT).1 This gave the WQARF
program funding that was more stable than under previous statutes.
􀁺􇩃 Change in liability—The second major reform changed the liability scheme of
WQARF from a joint liability scheme, similar to what the federal Superfund
program uses, to proportional liability. Under joint liability, one party can be held
liable for the entire cost of the cleanup regardless of the share of the waste
contributed by that party. In contrast, proportional liability requires responsible
parties to pay only for the cleanup of contamination they were responsible for at
a site. However, proportional liability leaves “orphaned shares,” which are
portions of cleanup costs that no responsible party pays for. The cost of cleaning
up these orphaned shares would then fall to the State.
􀁺􇩍 More settlement options—The third major reform was the creation of qualified
business and financial hardship settlements, which give liable businesses
options for settling their cleanup liability. A qualified business settlement allows
a business to settle for an amount less than its actual liability. To qualify for such
a settlement, the business must have an average annual gross income that is
less than $2 million for the 2 years preceding the initiation of an investigation into
that business’ share of the cleanup costs and for each of the 2 years prior to the
submission of the settlement application. The business can then settle and pay
10 percent of its average annual gross income for the 2-year period preceding
its application. A financial hardship settlement is available to those parties
demonstrating that their potential liability would affect their ability to stay in
business or require them to seek bankruptcy protection. Financial hardship
settlements do not take into account a party’s actual liability. Any costs for
cleanup that exceed the settlement amount would then be paid by the State.
1 A.R.S. §49-282 requires the State Treasurer to adjust the CIT transfer so that the combined total from the CIT and fee-generated
revenue is $18 million annually. Some types of revenue, including cost recovery collections and interest, are
not included in this calculation, which allows total program revenues to exceed $18 million annually. The revenue set at
$18 million has actually been lower for the last 2 fiscal years. In fiscal year 2002, these revenues were $8.7 million, and in
fiscal year 2003, they were $13.7 million.
Office of the Auditor General
page 31
􀁺􇨠 More flexible cleanup standards—The final major reform was the adoption of
more flexible cleanup standards. Previously, contaminated groundwater
cleanup usually used drinking water standards without taking into account cost
or feasibility. In contrast, the Department can now consider what the water will
be used for, as well as feasibility and cost in selecting a final remedy. Further, the
remedy does not necessarily have to return the contaminated water to drinking
water standards.
WQARF cleanup process
Figure 1 (see page 32) shows how the cleanup of sites contaminated by hazardous
substances happens in several stages. This includes the initial investigation of the
site to identifying those responsible, and finally, deciding on a final cleanup remedy.
Contractors do the actual work at sites, which includes collecting and analyzing data
that is later reviewed by department staff, preparing reports as part of the site
investigation, and designing, installing, operating and maintaining equipment
required to conduct a remedy.
When a site enters the WQARF program, it is added to the WQARF Registry, which
is a list of all the sites in the program. As of March 31, 2004, there were 33 sites listed
on the WQARF Registry.1 Figure 2 (see page 33) shows where each site is in the
various stages of the cleanup process. Three sites have finalized records of decision
and work on a final remedy is ongoing. Two other sites are nearing this stage, as they
have finalized proposed remedial action plans, while another site has just begun this
process. One site is in the feasibility study stage, and 16 are in the process of
undergoing or have just completed the remedial investigation. For the remaining 10
sites, the first step, the remedial investigation, has not yet begun.
While some sites have not yet begun the WQARF cleanup process, this does not
mean that there is no work being done to address contamination. At all 33 sites, the
Department has evaluated the current risk to the public and the environment, and for
some sites it is taking action to address contamination through an Early Response
Action, Interim Remedial Action, or the Final Remedy. Specifically, 24 sites have been
or are currently being addressed by either an interim remedial or early response
action as described in Figure 1 (see page 32). Another five sites were evaluated to
determine whether an early response action was appropriate, but the Department
has not yet taken any action. The remainder of the sites are being either cleaned up
through the final remedy or are nearing this stage.
As of March 2004, there
were 33 sites on the
WQARF Registry.
1 The EPA is cleaning up an additional nine sites listed on the federal National Priority List. The Department of Defense is
cleaning up ten sites. Two sites were added to the WQARF registry in June 2004 after the completion of audit work and
are not included in any of the numbers reported in this section.
State of Arizona
page 32
Figure 1: Water Quality Assurance Revolving Fund (WQARF)
Cleanup Process
As of March 31, 2004
Preliminary Investigation
Determines whether the contamination at a site is severe enough to warrant further
action and the appropriate program for the site.
No Further Action/Deferred
The contamination is not severe
enough to warrant further action at
this time.
List on Registry
The contamination exceeds
allowed limits, and WQARF is the
appropriate program to deal with
site.
Referral
The source of the contamination
can be dealt with through another
program such as hazardous
waste or voluntary remediation.
Interim Remedial Action
Action taken to treat
contamination at a well supplying
water for municipal, domestic,
irrigation, or agricultural use.
Early Response Action
Action taken before the final
remedy is chosen in order to
protect public health, the
environment, or to keep
contamination from spreading. This
may include treating contaminated
groundwater or the removal of
hazardous waste.
Source: Auditor General staff analysis of Water Quality Assurance Revolving Fund statutes, rules, and program reports.
Optional
Remedial Investigation
Determines the source and extent of the
contamination and identifies the remedial objectives
for cleanup at the site.
Feasibility Study
Identifies several options for meeting the remedial
objectives.
Proposed Remedial Action Plan
Selects one of the options from the Feasibility
Study, makes it public, and invites comments from
the public.
Record of Decision
Documents the plan chosen to clean up the site
after which the final remedy is implemented.
Office of the Auditor General
page 33
Figure 2: Water Quality Assurance Revolving Fund
Stages by Site
As of March 31, 2004
Remedial
Investigation
Feasibility
Study
Proposed
Remedial
Action Plan
Sites Started Completed Started Completed Started Completed
Record
of
Decision
East Central Phoenix
24th Street & Grand Canal
32nd Street & Indian School
38th Street & Indian School
40th Street & Indian School
40th Street & Osborn
48th Street & Indian School
West Central Phoenix
East Grand Avenue
North Canal Plume
North Plume
West Grand Avenue
West Osborn Complex
7th Street & Arizona Avenue
16th Street & Camelback
Klondyke Mine Tailings
20th Street & Factor
Broadway Pantano
Central & Camelback
East Washington Fluff
El Camino del Cerro
Miracle Mile
Park Euclid
Payson PCE
Pinal Creek
Shannon-Rillito
South Mesa
Tonto & Cherry
Tyson Wash
West Van Buren
Western Avenue
Estes Landfill
Los Reales
Silverbell Jail Annex
Vulture Mill
Early Response Action—Evaluation Completed
Early or Interim Response Action—Ongoing/Completed
No Early Response Action
Source: Auditor General staff analysis of Water Quality Assurance Revolving Fund site work reports.
Figure 2: Water Quality Assurance Revolving Fund
Stages by Site
As of March 31, 2004
State of Arizona
page 34
Potentially responsible party searches
Cleanup efforts at WQARF sites are funded in part by cost recovery from the parties
responsible for contamination. Responsible parties may include property owners,
businesses that operated at a site, or other parties that might have disposed of
hazardous substances on the site. The Department conducts a potentially
responsible party (PRP) search in conjunction with the remedial investigation,
proposed remedial action plan, and record of decision. As the remedial investigation
gathers more information about the types, extent, and sources of contamination, the
Department can identify those who might be responsible for the problem. Much of
the actual work done as part of PRP searches is carried out by a contractor.
The Department has begun work on PRP searches at all 33 sites. However, not all of
these searches are active. For example, the Department may terminate a search if it
determines that cost recovery at a site is not viable because a responsible party is
bankrupt or defunct. Other searches, where PRPs are eligible for a qualified business
settlement, have been suspended while the Department awaits possible reform on
this issue.1 Searches may also be on hold until the Department is able to identify
sources of contamination through the remedial investigation. Of the PRP searches at
the 33 sites:
􀁺􇩎 Nine are currently ongoing;
􀁺􇩔 Ten are suspended pending potential changes to qualified business
settlements;
􀁺􇩆 Five are on hold while the Department gathers more information via the remedial
investigation;
􀁺􇩆 Four are completed due to the responsible party taking the lead and paying for
cleanup on its own; and
􀁺􇩆 Five searches were terminated because there are no viable parties from which
the Department can recover costs.
The time it takes to complete a PRP search can range from less than 2 years to over
10 years, and depends on many factors. Some of the searches took less than 2 years
and determined that no viable parties remained from which the Department could
PRP searches have
begun at all 33 WQARF
sites.
1 The WQARF Advisory Board, a board made up of state officials and other stakeholders, was established as part of the
1997 reforms to monitor the program and offer recommendations for improvement. The Board is investigating several
options in regard to reforming qualified business settlements. One option being considered is the creation of a dry cleaner
remediation program. Another option being considered is to raise the annual income threshold at which businesses
become eligible for qualified business settlements.
Office of the Auditor General
page 35
recover costs. Other searches, like the PRP search at the Estes Landfill, a now-closed
municipal landfill located in Phoenix, date back to before WQARF reform in
1997. According to department officials, the complexity of the site and the large
number of PRPs contribute to the search taking such a long time to complete.
Cost recovery and cleanup spending
Identifying responsible parties through PRP searches should lead to the Department
recovering cleanup costs. Original estimates were that responsible parties would
fund 65 percent of the program after the reforms. However, there is concern among
stakeholders and program management that cost recovery from responsible parties
will be much less than the original estimate. One reason for the difference between
the initial estimates and what may become reality is that responsible parties cannot
be found or are not viable, resulting in orphaned shares.
Despite concerns about the ability to collect, the Department has recovered costs
from responsible parties while other parties pay directly for cleanup. These other
parties are known as working parties and pay for cleanup at a site without entering
into a settlement with the Department. The money these working parties spend does
not pass through WQARF and is not reflected as revenue for the program. According
to the Department, it has recovered a total of over $12.4 million from responsible
parties and spent $6.1 million on PRP searches since the beginning of fiscal year
1998.1 In addition, the Department estimates that working parties have spent over
$120 million of their own money on cleanup work at 12 sites. In all, work at 17 sites
is funded either through settlements or working party contributions.
For sites where the Department cannot find viable, responsible parties, the State will
have to pay for all or part of the cleanup. There are now four sites where PRP
searches have found no viable, responsible parties. At least 19 other sites may have
some orphaned shares as well. This means the State will have to pay for some of the
costs of cleanup at these sites while other viable, responsible parties pay for their
share.
Since fiscal year 2001, according to the Department, it has spent more on sites than
on its core costs, which include personnel, conducting PRP searches, and transfers
to the Attorney General. Site costs include remedial investigations, feasibility studies,
and other cleanup costs. For fiscal year 2004, the Department budgeted $11.3
million for work on sites and $7.6 million for its core costs. The Department expects
expenditures on sites to continue to exceed those of core costs.
Since fiscal year 2001,
WQARF has spent more
money on sites than on
core costs.
1 This does not include transfers to the Attorney General who, in addition to other duties, provides assistance on PRP
searches. WQARF transfers to the Attorney General total $5.6 million between fiscal years 1998 and 2003.
Administrative costs are calculated appropriately
In 2003, the Legislature required the WQARF Advisory Board to make
recommendations to the Department about how to reduce the administrative costs
of the WQARF program.1 To fulfill this requirement, the WQARF Board and the
Department used legislative guidelines to create three categories of costs:
administrative, program, and PRP search-related. The WQARF Board and the
Department determined that administrative costs include senior management
activities, clerical support, WQARF fund administration, contract administration, rule
development activities, nonsite specific public notices, data entry, and community
involvement personnel. Program costs (or costs related to actual cleanup work) are
defined to include site contractor costs, activities related to project management,
hydrologic support, preliminary investigations, and emergency response. Finally,
PRP search costs include the search contractor, legal assistance, and search
oversight.
The Department and the WQARF Advisory Board determined that for fiscal year
2004, WQARF will spend approximately $2 million, or 9.9 percent of its total budget,
on administrative costs. The Advisory Board recommended setting a ceiling of $2.5
million for administrative costs. Although the Department’s calculated amount of
administrative costs for fiscal year 2004 was not audited, the categorization of these
costs and the methodology used to calculate them appear appropriate.
1 Laws 2003, Chapter 262, section 32.
State of Arizona
page 36
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
ARIZONA DEPARTMENT
OF ENVIRONMENTAL QUALITY
1110 West Washington Street 􀁹􇥐 Phoenix, Arizona 85007
Janet Napolitano (602) 771-2300 􀁹􇤠 www.adeq.state.az.us
Governor
Stephen A. Owens
Director
Northern Regional Office
1515 East Cedar Avenue 􀁹􇤠 Suite F 􀁹􇤠 Flagstaff, AZ
86004
(928) 779-0313
Southern Regional Office
400 West Congress Street 􀁹􇤠 Suite 433 􀁹􇤠 Tucson, AZ
85701
(520) 628-6733
Printed on recy cled paper
August 26, 2004
Debra K. Davenport, C.P.A.
Auditor General
2810 North 44th Street, Suite 410
Phoenix, AZ 85018
Re: Performance audit and Sunset review – Waste Programs Division
Dear Ms. Davenport:
On behalf of the Arizona Department of Environmental Quality, we appreciate the opportunity to
respond to the Waste Programs Division performance audit report. The report is a useful
assessment of the Division’s enforcement time frames and the Underground Storage Tank State
Assurance Fund. We thank the Office of the Auditor General for its effective communication
throughout the audit process.
As the audit reflects, the Waste Programs Division’s mission is to “protect and enhance public
health and the environment by reducing the risk associated with waste management, regulated
substances and contaminated sites.” The Division achieves this mission with hazardous waste
facility inspections, landfill approvals, site investigations, clean up orders and recycling fund
grants administered by the Division, to name only a few of the Division’s responsibilities.
Despite revenue and budget reductions in the past few years, ADEQ has seen improvements in
quality and performance, including the Hazardous Waste Program, Underground Storage Tank
Program and the State Assurance Fund, which are the focus of your audit.
As the audit noted, children’s health is a goal of the Waste Programs Division and the
Department as a whole. This goal is a direct result of the Governor’s leadership to protect
Arizona’s most valuable resource--our children. The Division has taken significant steps to
improve the environment for children. For example, ADEQ’s pollution prevention program,
within the Waste Programs Division, recently received a grant from the U.S. Environmental
Protection Agency to educate and encourage school districts to construct or retrofit schools to be
more environmentally friendly. This “Green Schools” initiative will develop design,
construction and operational practices that will reduce children’s exposure to potentially harmful
chemicals typically found in school settings.
Additionally, the Division surveyed Arizona schools on the use of chromated copper arsenic
wood-coated playground equipment to assess children’s potential exposure to this substance.
Finally, when TCE-contaminated water was being used for irrigation in a north Arizona
Ms. Davenport Page 2 of 6
August 26, 2004
elementary school, the Division quickly stepped in and conducted sampling of drinking water
wells to ensure that children were being protected. The Division is conducting further
investigation of the cause of contamination in the irrigation water and options for correcting the
problem.
FINDING 1: CHANGES HAVE BEEN MADE TO THE STATE ASSURANCE FUND,
AND THE DEPARTMENT SHOULD TAKE ADDITIONAL ACTIONS
The audit addressed the Underground Storage Tank Program and the State Assurance Fund
(SAF). As the audit noted, the Legislature has enacted numerous significant changes to the
Department’s administration of the SAF, including an eligibility deadline of 2006 and claims
deadline of 2010. To better enable the Department to implement the new legislation and to
improve efficiencies throughout the UST and SAF programs, these programs have been
consolidated into a new Tank Programs Division. The new Division consists of the SAF
Program, which was moved from the Administrative Services Division, and the UST Corrective
Action Section and UST Program Support Section, which were moved from the Waste Programs
Division. The new Division will focus on implementing the new legislation, cleaning up leaking
UST sites, increasing outreach efforts across the state, increasing inspections and compliance,
streamlining SAF, and continuing other program efforts. The creation of the new Division will
allow the Department to effectively implement the statutory changes and the audit
recommendations.
As the audit recognizes, the Department also has made substantial administrative improvements
to the SAF. By January 2003, the Department faced a backlog of over 1,100 unpaid SAF
applications by SAF claimants. In early 2003, an internal working group was established by the
Department to determine the reasons for this enormous backlog. In May 2003, the Department
made key administrative changes to the SAF, and, as the audit recognizes, since that time, the
Department has eliminated this backlog completely. SAF applicants no longer must wait years
for payment. The SAF is operating on a cash basis and, as applications are processed and
approved, they are paid. The Department thanks the Auditor General for noting this dramatic
improvement to SAF claims processing in the audit.
Further, the audit recognizes the significant progress the UST program has made since October
2003 in enforcing the federal and state regulations concerning financial responsibility (FR)
requirements for owners and operators of underground storage tanks. The Department has
recognized the importance of enforcing FR requirements and initiated an aggressive program of
informing the regulated public about FR requirements in June 2003. The Department sent post
cards to all owners and operators of underground storage tanks describing the FR requirements.
In October 2003, the UST program transmitted FR site status letters to more than 450 UST
owners that were identified as not having FR. This effort resulted in an increase in the FR
compliance rate from 52 percent of UST facilities in October 2003 to 62 percent in January
2004. To further increase the FR compliance rate, the department began conducting operational
compliance inspections at facilities out of compliance with FR requirements. This effort is the
prelude to more formal enforcement measures, including the issuance of orders and the
assessment of penalties, if required.
Ms. Davenport Page 3 of 6
August 26, 2004
In addition to the Department’s increased effort to ensure compliance with the financial
responsibility requirements, from July 1, 2003, to July 31, 2004, the UST program dramatically
improved its UST facility inspection cycle times from greater than 9 years to approximately once
every 4 years. During this time period, 618 facilities were inspected for operational compliance
which resulted in the issuance of 47 Notice of Violations for significant operational violations.
The program is in the process of hiring additional inspectors to reduce the inspection cycle to
every 3 years.
The audit recommendations address continued enforcement of the UST financial responsibility
requirements and an evaluation of the reasonableness of the SAF cost ceilings. The Department
agrees with the auditor’s assessment that compliance with financial responsibility requirements
is a high priority as the SAF comes to an end. Similarly, to reduce the burden on the SAF and
thereby help ensure all valid claims are paid and the new Regulated Substance Fund is fully
funded, the Department will reassess the existing cost ceilings. Please be assured that the new
Tank Programs Division will implement these recommendations in addition to other steps
necessary to make SAF a more efficient and effective public fund.
RECOMMENDATIONS
1. The Department should continue to work on increasing compliance with financial assurance
requirements, including pursuing formal enforcement actions, such as consent orders and
compliance orders, as necessary.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
2. The Department should assess the cleanup costs charged to the State Assurance Fund to see
if cost ceilings are being treated as the actual price of cleanup costs rather than as an upper
limit for costs.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. If contractors are routinely charging at the cost ceilings for certain cleanup activities, the
Department should consider revising cost ceilings to better reflect the true cost of cleanup
work.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
4. If the Department performs a cost survey to create the cost ceilings that will be effective in
July 2005, it should use an appropriate methodology and not allow respondents to answer
questions that do not pertain to their occupation.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Ms. Davenport Page 4 of 6
August 26, 2004
5. The Department should examine the feasibility of instituting competitive bidding as a method
of controlling State Assurance Fund costs.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
FINDING 2: THE DIVISION SHOULD IMPROVE ITS HAZARDOUS WASTE
ENFORCEMENT EFFORTS
The audit of the hazardous waste enforcement program focused very specifically on the
timeliness of enforcement actions. ADEQ recognizes the importance of swift enforcement, and
the Division will explore and implement ways to speed up, streamline, and escalate as
appropriate its enforcement actions in accordance with the recommendations in the audit.
However, the audit’s focus on a single aspect of the hazardous waste enforcement program gives
an incomplete picture of the total effectiveness and accomplishments of our hazardous waste
enforcement efforts.
First and foremost, the Department’s hazardous waste inspection program ensures that any
imminent and substantial risk discovered at an inspection is addressed during or immediately in
response to the inspection. This is accomplished by providing the facility with immediate
written and oral instructions on major violations at the time of the inspection through an exit
debriefing interview and written instructions. The exit debriefing frequently requires the facility
to provide documentation to ADEQ that major violations are addressed within 10 days.
Although Arizona law requires only the inspection report to be issued within 45 days after the
inspection, ADEQ has adopted a policy requiring that the initial enforcement action also be
issued within this same time frame. Even though ADEQ’s inspection report and enforcement
action may in some cases be issued up to 90 days after the inspection, ADEQ’s use of the exit
debriefing has ensured that any actual imminent risk to human health or the environment is
corrected in a timely manner.
Overall, the hazardous waste enforcement program is very effective in discovering violations,
returning violators to compliance, and imposing appropriate penalties to serve as a deterrent.
For example, the audit includes a summary table, which demonstrates clearly that the number of
informal enforcement actions--Notices of Opportunity to Correct (NOCs) and Notices of
Violation (NOVs)--have generally increased over the last four years, and during fiscal year 2004
the program initiated 96 informal actions (36 NOCs and 60 NOVs), compared to 56, 73, and 30
in fiscal years 2003, 2002, and 2001, respectively. This far exceeds the number of actions taken
in any fiscal year since the year 2000, and is a 71% increase compared to the 56 that were issued
in fiscal year 2003. This data is indicative of a program that is active, mature and appropriately
enforcing Arizona’s hazardous waste laws.
ADEQ’s policy generally provides that facilities get the opportunity to address violations in the
context of an informal enforcement action, the Department must pursue penalties when a facility
has either received an economic advantage by operating out of compliance or they have
significantly violated the law threatening human health and the environment. The hazardous
waste program has demonstrated a record of taking aggressive, yet appropriate, penalty actions
Ms. Davenport Page 5 of 6
August 26, 2004
for the state. In 2001, ADEQ and EPA settled the largest hazardous waste case in the United
States for over $22 million. Since that time, ADEQ has consistently taken penalty actions that
are appropriate given the potential contamination that could occur as a result of mismanagement
of hazardous waste. In the last two years, the Department has concluded 9 penalty cases
resulting in facilities paying more than $600,000 to the state’s General Fund and more than
$100,000 in supplemental environmental projects (SEP). See Table 1.
Table 1. 2002-2004 Hazardous Waste Enforcement Penalty Cases
Aviation Management
Services
$30,000
W.L. Gore & Associates $90,000
Phoenix Heat Treating, Inc. $50,000
Arizona Public Service $200,000
Dome Rock Industries, Inc. $100,000
Sunbelt Tank $7,000
Thermofluids $22,250
Superior Special Services $143,000, plus $125,000 SEP
Mesa Oil $7,500, plus $1,000 SEP
In addition to penalty cases, ADEQ’s hazardous waste program also has taken administrative
actions that directly protect the citizens of Arizona. On February 26, 2003 the Department
issued orders against and revoked the license of Innovative Waste Utilization, LLC, in Phoenix.
On March 7, 2003, ADEQ initiated an emergency response action to remove approximately
1,000 barrels of hazardous waste from the facility after a number of the barrels were found to
present an imminent and substantial endangerment to the community during an inspection earlier
in that day. These and other enforcement actions demonstrate the Department’s increased efforts
to protect and enhance public health and the environment, and we are committed to do more.
The audit report states that facilities often do not return to compliance within the short time
frames required by the hazardous waste program. ADEQ operates with the goal of minimizing
potential impacts to human health and the environment, and therefore, returning facilities to
compliance within the shortest possible time. To that end, the hazardous waste enforcement
program uses aggressive time frames for achieving compliance. As the report states, these time
frames are often far less than the 120 days initially allowed by the Department’s policy. If a
facility makes progress on accomplishing all of the required actions, ADEQ has the authority to
extend the time frame an additional 60 days. Although the data you have presented in the audit
report suggest that facilities are not returning to compliance within an acceptable time frame, a
further review of the data shows that the program is, in fact, responsibly taking actions to return
facilities to compliance. ADEQ records show that 96% of all facilities receiving informal
enforcement actions during fiscal year 2004 were either returned to compliance or escalated for
further enforcement within the 180 total days allowed by ADEQ policy.
Ms. Davenport Page 6 of 6
August 26, 2004
RECOMMENDATIONS
1. To more quickly notify responsible parties about violations identified during inspections, the
Division should explore ways to streamline its review and approval process for enforcement
actions.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
2. The Division should consider setting in policy specific timeframes for each step in the
enforcement action review and approval process.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. The Division should escalate both informal and formal enforcement actions to the next level
as necessary against responsible parties that have not corrected their violations.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
4. The Division should modify its computer system to allow for the generation of management
reports to track the status of enforcement actions.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Thank you for the opportunity to respond to the performance audit and Sunset review for the
Waste Programs Division.
Sincerely,
Stephen A. Owens
Director
02-07 Arizona Health Care Cost
Containment System—Medical
Services Contracting
02-08 Arizona Health Care Cost
Containment System—
Quality of Care
02-09 Arizona Health Care Cost
Containment System—
Sunset Factors
02-10 Department of Economic
Security—Division of Children,
Youth and Families, Child
Protective Services
02-11 Department of Health
Services—Health Start
Program
02-12 HB2003 Children’s Behavioral
Health Services Monies
02-13 Department of Health
Services—Office of Long Term
Care
03-L1 Competitive Electric Metering,
Meter Reading, and Billing
and Collections
03-01 Government Information
Technology Agency—
State-wide Technology
Contracting Issues
03-02 Registrar of Contractors
03-03 Water Infrastructure Finance
Authority
03-04 State Board of Funeral
Directors and Embalmers
03-05 Department of Economic
Security—Child Protective
Services—Foster Care
Placement Stability and
Foster Parent Com

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A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Department of
Environmental Quality
Waste Programs Division
Performance Audit Division
August • 2004
REPORT NO. 04 – 06
Performance Audit
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting servic-es
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Representative John Huppenthal, Chair Senator Robert Blendu, Vice Chair
Representative Tom Boone Senator Gabrielle Giffords
Representative Ken Clark Senator Peter Rios
Representative Ted Downing Senator Thayer Verschoor
Representative Steve Yarbrough Senator Jim Weiers
Representative Jake Flake (ex-officio) Senator Ken Bennett (ex-officio)
Audit Staff
Lisa Eddy, Manager and Contact Person
Michelle Antieau Chris Horton
Michael Nickelsburg
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
August 30, 2004
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Stephen A. Owens, Director
Arizona Department of Environmental Quality
Transmitted herewith is a report of the Auditor General, a Performance Audit and Sunset Review
of the Department of Environmental Quality, Waste Programs Division. This report is in response
to a November 20, 2002, resolution of the Joint Legislative Audit Committee. The performance
audit was conducted as part of the Sunset review process prescribed in Arizona Revised Statutes
§41-2951 et seq. I am also transmitting with this report a copy of the Report Highlights for this
audit to provide a quick summary for your convenience.
As outlined in its response, the Department of Environmental Quality agrees with all of the
findings and plans to implement all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on August 31, 2004.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
Services:
The Waste Programs Division, implements programs to reg-ulate
and monitor the handling of solid and hazardous waste,
identify and oversee the cleanup of hazardous waste sites,
and minimize waste generation. The Division provides serv-ices
in five main areas:
􀁺􇩔 The Solid Waste program—Monitors relevant waste
storage, treatment, and disposal facilities (such as
landfills), and encourages waste reduction, reuse,
and recycling.
􀁺􇩔 The Hazardous Waste program—Monitors hazardous
waste generation, storage, treatment, and disposal.
􀁺􇩔 The Underground Storage Tanks (UST) program1—
Monitors all USTs, such as gasoline storage tanks, to
ensure proper installation and operation. It is also
responsible for overseeing the cleanup of sites con-taminated
by leaking USTs.
􀁺􇩔 The Superfund section—Manages the identification
and cleanup of sites contaminated by hazardous sub-stances.
The cleanup of these sites takes place as
part of the Water Quality Assurance Revolving Fund
(WQARF) or in conjunction with federal agencies.
􀁺􇩔 The Voluntary Remediation and Prevention program—
Oversees voluntary remediation of contaminated sites
and promotes pollution prevention.
Facilities:
The agency’s headquarters are located at 1110 West
Washington Street in Phoenix and are leased under the PLTO
(private lease-to-own) program. The Waste Division uses
approximately 43,000 square feet at this facility. The
Department pays an annual lease fee of nearly $3.5 million
for the use of 184,200 square feet. In addition to the Central
Phoenix Office, the Division has some staff located in the
PROGRAM FACT SHEET
Department of Environmental Quality
Waste Programs Division
Program revenue:
$33 million (fiscal year 2003)
Program staffing:
253 FTEs, including 78 vacancies (as of April 1, 2004)
Office of the Auditor General
Superfund
(62)
Underground Storage
Tank—Corrective
Hazardous Waste Action (49)
(43)
Solid Waste
(35)
Underground
Storage Tank—
Program Support
(32)
Capacity
Development (28)
Director’s
Office (4)
Water Quality
Assurance
Revolving Fund
$19.8 million
State Assurance
Fund
$4.5 million
Federal
Grants
$4.2 million
Licenses,
Permits, and
Other Fees
$3.2 million
General Fund
Appropriations
$1.33 million
Interest
$179,000
Miscellaneous
$138,000
1 After the completion of audit work, effective August 2, 2004, the UST program has been moved to the newly created
Tank Programs Division.
Southern Regional Office (SRO) in Tucson. The SRO is located in a state-owned building that the
Department rents from the Department of Administration. The annual lease costs $116,000 for
5,700 square feet. The Department does not break down these building costs by division.
Equipment:
The Division owns emergency response, and soil and groundwater sampling equipment. The
Division also pays the Department of Administration a monthly lease fee of nearly $10,000 for 26
vehicles.
Mission:
To protect and enhance public health and the environment by reducing the risk associated with
waste management, regulated substances, and contaminated sites.
Program goals:
The Waste Programs Division has adopted the Department’s four goals .
1. Improve the quality of Arizona’s air, land, and water (by reducing the risk associated
with waste management and contaminated sites).
2. Enhance relationships with the public, the regulated community, and agency partners.
3. Provide leadership on children’s environmental health.
4. Provide value to all of Arizona.
Adequacy of the performance measures:
The Division’s 16 performance measures are generally adequate, and include 10 outcome
measures, 3 output measures, 2 efficiency measures, and 1 quality measure. However, the
Division should consider adopting a few additional performance measures to more fully capture
the breadth of its work. For example, the Division could create an input measure that reports the
number of leaking underground storage tank (UST) incidents reported, and an output measure
that reports the number of letters of closure issued. The Division already tracks and reports this
type of data to the UST Policy Commission. Additionally, the Division has not developed any per-formance
measures related to providing leadership on children’s environmental health.
State of Arizona
Source: Auditor General staff compilation of unaudited information from the Department and Arizona Financial
Information System (AFIS) Accounting Event Transaction File for the year ended June 30, 2003.
The Office of the Auditor General has conducted a performance audit of the
Department of Environmental Quality, Waste Programs Division pursuant to a
November 20, 2002, resolution of the Joint Legislative Audit Committee. This audit
was conducted as part of the Sunset review process prescribed in A.R.S. §41-2951
et seq and is the second in a series of four reports on the Department of
Environmental Quality. The first report focused on the Water Quality Division, and the
subsequent reports will focus on the Air Quality Division and an analysis of the 12
statutory Sunset factors.
The Department’s Waste Programs Division regulates underground storage tanks
(USTs), landfills, and other facilities that store solid waste and hazardous waste, such
as dry cleaning solvents.1 The Division also operates or assists with two cleanup
funds. One, the State Assurance Fund, assists underground storage tank owners
and operators with cleanup costs if their tanks leak. The second, the Water Quality
Assurance Revolving Fund (WQARF), is for cleaning up sites that have been
contaminated by hazardous substances.
Changes made to the State Assurance Fund, and
Department should take additional actions (see pages 11
through 19)
The Legislature recently made changes to the State Assurance Fund (Fund), and the
Department should take additional actions to increase compliance with financial
assurance requirements and to reduce costs to the Fund. The Fund, supported by a
$.01 per gallon excise tax on regulated USTs, based on the quantity of regulated
substances placed in a tank in any calendar year, assists qualifying UST owners and
operators with up to $1 million per leak to clean up leaking underground storage tank
sites. The Legislature created the Fund in 1990 to help UST owners meet federal and
state requirements for financial responsibility. These regulations require that UST
owners acquire a minimum level of financial assurance to cover costs associated
with the cleanup of leaking USTs. Although this assurance could normally be
1 Effective August 2, 2004, UST regulation is located in the newly created Tank Programs Division.
Office of the Auditor General
SUMMARY
page i
provided through private insurance, in the late 1980s private insurance became less
available as insurers declined to continue writing policies. The Fund was intended to
help fill the gap created by the declining insurance availability. However, insurance is
currently available and affordable, and most UST owners and operators who are in
compliance with financial assurance requirements have private UST insurance.
In May 2004, legislation making several important changes to the Fund was passed.
First, the legislation changed the requirement that UST owners and operators first
access their own insurance before applying to the Fund. Additionally, the legislation
set June 30, 2006, as the last day that UST releases can be reported to the
Department to maintain eligibility for cleanup assistance from the Fund. Owners and
operators of leaking USTs who have not reported releases by that date will need to
access their alternative financial assurance mechanism, such as private UST
insurance, to pay for cleanup costs.
The legislation also created a Regulated Substance Fund to succeed the State
Assurance Fund in July 2011. The Regulated Substance Fund will provide cleanup
assistance to sites for which the UST owner cannot be located within 90 days. The
legislation directs the Department’s director to transfer money from the State
Assurance Fund to the Regulated Substance Fund once all State Assurance Fund
claims are paid. However, if the State Assurance Fund still has unpaid claims in July
2011, then the Regulated Substance Fund will not receive any funding until the claims
are paid. Further, the $.01 per gallon excise tax will not begin funding the Regulated
Substance Fund as scheduled until all the State Assurance Fund’s claims are paid.
The Department should build on the legislative changes to the Fund by taking steps
to improve UST owners’ and operators’ compliance with financial assurance
requirements. Compliance with these requirements will be even more important as
eligibility for the State Assurance Fund ends, when owners and operators have only
their own financial assurance to provide for cleanup of leaking USTs. As of January
2004, only 62 percent of UST facilities have met these state and federal requirements.
The Department should continue its work to improve the rate of compliance with
financial assurance requirements, including using formal enforcement actions if
necessary.
Additionally, the Department should take steps to reduce costs to the Fund. First, the
Department should reassess the Fund’s cost ceilings to see if they are too high.
Private consultants who are hired by the owners, operators, or Fund volunteers to
clean up a leaking UST site can bill the Fund for the cleanup work that is performed.1
However, there are limits, called cost ceilings, on the amount that consultants can bill
the Fund for various cleanup activities. Key UST stakeholders convened by the
director believe that cleanup costs are inflated to the point that the cost ceilings are
no longer the upper limit, but have become the going price of the cleanup work.
Further, according to some fund management staff, the cost ceilings are higher than
1 A volunteer is someone who has acquired ownership or control of property where a UST is located, but is not the owner
of the UST. A volunteer may provide for cleanup of a leaking UST and may receive Fund coverage, but is not legally liable
for cleanup.
State of Arizona
page ii
they should be because they were based on a cost survey that was created using a
flawed method. If the Department uses a cost survey to create its next set of cost
ceilings in June 2005, department management should ensure that methodology
used to perform the cost survey is appropriate. Further, fund management should
explore the possibility of using competitive bidding for cleanup work as a method for
controlling costs.
Division should improve its hazardous waste
enforcement efforts (see pages 21 through 28)
The Department should improve the timeliness of issuing, escalating, and resolving
hazardous waste enforcement actions. The Division is responsible for ensuring that
all hazardous waste in Arizona is stored, transported, and disposed of properly. It is
important for hazardous waste to be managed properly because it can represent a
significant public health threat. An enforcement action, whether informal or formal, is
taken when violations of hazardous waste laws and regulations are found at a facility.
However, the Division sometimes takes several months to issue an enforcement
action when it finds a violation. For example, while the Division’s policy requires it to
send an enforcement action to a facility’s responsible party within 45 days of the
inspection, the Division has taken longer than 90 days to issue some actions.
Although the Division immediately notifies the facility of serious violations in writing at
the time of the inspection, not as much detail and information is included as on the
official enforcement action. Further, the responsible party may be unaware of the
details for compliance regarding less serious violations and therefore remain out of
compliance longer. In addition, the Division does not always escalate enforcement
actions to the next level when responsible parties do not correct their facilities’
violations and return to compliance.
To improve its enforcement efforts, the Division should take several steps. First, the
Division should explore ways to streamline its review and approval process for
enforcement actions. The Division should also modify its computer system so that it
will produce reports that management and staff can use to track the status of
enforcement actions that are in the review process. Finally, the Division should
escalate enforcement actions to the next level as appropriate.
Other pertinent information (see pages 29 through 36)
During the audit, auditors gathered information about the State’s Water Quality
Assurance Revolving Fund (WQARF) program, also known as the State Superfund
program. The WQARF program is the state program responsible for identifying,
Office of the Auditor General
page iii
assessing, and cleaning up soil and groundwater contaminated with hazardous
substances. In many respects, WQARF is similar to the federal Superfund program,
and both programs are currently responsible for cleaning up sites in Arizona.
However, reforms in 1997 substantially changed several key aspects of WQARF.
These reforms included dedicating more revenues to the program and changing the
liability standard to assign financial responsibility based on each party’s proportion
of the contamination.
As of March 31, 2004, the 33 sites on the WQARF registry were in various stages of
cleanup. At all 33 sites, the Department has evaluated the current riskto the public
and the environment. At 10 sites, cleanup work has not yet begun. Sixteen sites are
in the process of undergoing or have just completed the remedial investigation,
which is the first step. One site is in the feasibility study stage, which identifies several
options for cleanup. One site has just begun the process to identify the final cleanup
plan, two sites have proposed final cleanup plans in place, and for three sites work
on the final remedy is ongoing. In order to assign financial liability, the Department
has started searches for parties potentially responsible for contamination at all 33
sites.
According to the Department, it has recovered $12.4 million for cleanup from
responsible parties, and responsible parties have also spent another $120 million for
cleanup on their own. Lastly, auditors determined that for fiscal year 2004, the
Departments’s categorization of the WQARF program’s administrative costs and the
methodology used to calculate these costs appear appropriate.
State of Arizona
page iv
Office of the Auditor General
TABLE OF CONTENTS
continued
1
11
11
12
15
17
19
21
21
23
25
28
29
29
31
34
35
36
Introduction & Background
Finding 1: Changes made to the State Assurance
Fund, and Department should take additional actions
Fund provides coverage for leaking USTs
Recent legislation significantly changed the Fund
Greater compliance needed when Fund eligibility ends
Fund costs could be reduced
Recommendations
Finding 2: Division should improve its hazardous waste
enforcement efforts
Division regulates through inspections and enforcement actions
Division should improve enforcement timeliness
Division should ensure facilities correct violations
Recommendations
Other Pertinent Information
Superfund programs in Arizona
WQARF cleanup process
Potentially responsible party searches
Cost recovery and cleanup spending
Administrative costs are calculated appropriately
page v
State of Arizona
TABLE OF CONTENTS
Tables:
1 Waste Programs Division
Schedule of Revenues and Expenditures
Years Ended June 30, 2002 and 2003
(Unaudited)
2 Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
3 State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
4 Hazardous Waste Section
Timeliness of Issuing Informal Enforcement Actions
Fiscal Years 2001 through 2004
5 Hazardous Waste Section
Status of Informal Enforcement Actions
Fiscal Years 2003 and 2004
Figures:
1 Water Quality Assurance Revolving Fund (WQARF)
Cleanup Process
As of March 31, 2004
2 Water Quality Assurance Revolving Fund
Status of Sites by Stage
As of March 31, 2004
7
8
9
24
26
32
33
concluded
page vi
The Office of the Auditor General has conducted a performance audit of the
Department of Environmental Quality, Waste Programs Division pursuant to a
November 20, 2002, resolution of the Joint Legislative Audit Committee. This audit
was conducted as part of the Sunset review process prescribed in A.R.S. §41-2951
et seq and is the second in a series of four reports on the Department of
Environmental Quality. The first report focused on the Water Quality Division, and the
subsequent reports will focus on the Air Quality Division and the analysis of the 12
statutory Sunset factors.
Division regulates waste pollutants in Arizona
The Waste Programs Division is one of four divisions within the Department of
Environmental Quality (Department). The other divisions are the Air Quality Division,
the Water Quality Division, and the Administrative Services Division.1 The Waste
Programs Division’s mission is to protect public health and the environment by
reducing risk associated with waste management, regulated substances, and
contaminated sites. The Division is responsible for regulating underground storage
tanks (USTs) that contain petroleum products; as well as solid waste, such as refuse
in landfills; and hazardous waste, such as dry cleaning solvent. The Division also
oversees the cleanup of Water Quality Assurance Fund (WQARF) sites, the State’s
Superfund program, at which soil or water are contaminated with hazardous
substances.
The danger posed by waste products is significant. For example, petroleum that
leaks from an underground storage tank can seep into the soil and contaminate
groundwater. A leaking underground storage tank may also present other health and
environmental risks, including the potential for fire and explosion. Proper
management of solid and hazardous waste is needed to ensure that waste does not
enter the environment and potentially adversely affect people’s health or the
environment. Solid waste can also be become a nuisance, especially at landfills
where blowing litter and odors can negatively impact nearby residents. Poor
management of the growing amount of waste produced in the United States after
1 After the completion of audit work, the Department created a fifth division, the Tank Programs Division, effective
August 2, 2004.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
World War II led to many areas being contaminated. These areas are now part of
federal or state Superfund programs, which provide funding and oversight for the
cleanup of contaminated soil or water.
Division organization and responsibilities
According to the Waste Programs Division, as of April 1, 2004, it had 253 FTEs, of
which 78 were vacant positions. The employees are organized in 6 sections, each
providing a variety of services related to waste management, regulated substances,
and contaminated sites.1
􀁺􇩕 Underground Storage Tanks Program (USTs)—The UST program is divided into
two sections, Program Support and Corrective Action:
􀂄􈑐 Program Support Section (32 FTEs, 9 vacancies)—This program registers
and maintains an inventory of all USTs. It also performs inspections of USTs
to ensure that the proper leak detection equipment has been installed and
is working correctly, and educates UST owners and operators about
monitoring leak detection equipment. Additionally, this program certifies
UST installers and other UST service providers. Further, the program is
responsible for ensuring that UST owners and operators comply with
financial assurance regulations, such as the minimum amount of insurance
that owners must maintain to provide for cleanup. Finally, the program
enforces noncompliance with leak detection regulations or financial
assurance through informal enforcement actions, such as giving the UST
owner or operator a Notice of Opportunity to Correct Deficiencies (NOC) or
a Notice of Violation (NOV), or formal enforcement actions such as an
administrative order or consent order.
􀂄􈑃 Corrective Action Section (49 FTEs, 12 vacancies)—This program is
responsible for overseeing the cleanup of leaking USTs and can issue
NOCs or NOVs, and administrative orders against entities that are not
performing needed remediation. The program also contains the state-lead
program, through which it oversees cleanup on sites with no known owner,
or whose owners are financially or technically unable or are unwilling to
provide for remediation work.
􀁺􇩈 Hazardous Waste Section (43 FTEs, 15 vacancies)—Arizona received final
authorization from the Environmental Protection Agency (EPA) in 1985 to
manage the State’s hazardous waste program. The Hazardous Waste Section
is responsible for ensuring that all hazardous waste in Arizona is stored,
transported, and disposed of properly, and is largely a preventative program to
1 The Waste Programs Division’s total of 253 FTEs includes 4 FTEs in the Director’s Office, including the division director,
the deputy division director, a rule writer, and an administrative assistant.
State of Arizona
page 2
keep hazardous waste from entering the environment. This is accomplished in
four ways: 1) by conducting periodic inspections of hazardous waste
transporters, generators, and treatment, storage, and disposal (TSD) facilities;
2) by taking enforcement actions against facilities’ responsible parties that are
not following the applicable state and federal regulations; 3) by permitting
facilities that treat, store, and/or dispose of hazardous waste; and 4) by tracking
hazardous waste from generation to disposal.
􀁺􇩓 Solid Waste Section (35 FTEs, 16 vacancies)—The Division’s Solid Waste
Section monitors relevant waste storage, treatment, and disposal facilities (such
as landfills) and encourages waste reduction, reuse, and recycling. The
regulation of solid waste facilities includes the approving of operational plans,
issuing permits, and monitoring compliance through facility inspection. The
Department can take enforcement action, such as issuing NOCs and NOVs
against responsible parties found out of compliance during an inspection. The
agency receives funding for the regulation of solid waste from the General Fund,
as well as other sources, such as the Solid Waste Fee Fund and the Recycling
Fund.
􀁺􇨠 Superfund Section (62 FTEs, 21 vacancies)—This section is responsible for
identifying, assessing, and cleaning up sites on which the soil or groundwater
has been contaminated with hazardous substances. The section uses the
Arizona Water Quality Assurance Revolving Fund (WQARF), created under the
State’s Environmental Quality Act of 1986, to support hazardous substance
cleanup efforts at these WQARF, or state Superfund, sites. The section also
assists efforts at federal sites, known as federal Superfund sites, that have soil
or water contaminated with hazardous substances. Finally, the section also
works to identify parties responsible for contamination at a site and to recover
appropriate cleanup costs from them.
􀁺􇨠 Capacity Development Section (28 FTEs, 5 vacancies)—The Capacity
Development section has a variety of functions. These include oversight of
voluntary cleanup programs, identification of new WQARF sites and federal
Superfund sites, and determination of standards for cleanup at particular sites.
The section also employs one FTE to write administrative rules relating to
division programs, and assists other sections with data management.
The Division also works with the State Assurance Fund (Fund) section, which is
located in the Administrative Services Division. The Fund exists to assist UST owners
and operators with the costs of cleaning up leaking USTs by providing payments of
up to $1 million for eligible cleanup costs.
􀁺􇩓 State Assurance Fund Section (31 FTEs, 2 vacancies)—This section
administers the State Assurance Fund by processing claims applications,
reviewing the applications to ensure that they meet technical and cost
requirements, and paying eligible claims. In fiscal year 2003, the section paid
Office of the Auditor General
page 3
approximately $15.6 million to help clean up contaminated UST sites. According
to fund management reports, the Fund received 699 applications in calendar
year 2003. As of March 31, 2004, the section reduced the backlog of
unprocessed claims to 17.
In May 2004, the Legislature passed Laws 2004, Chapter 273, which provided
that eligibility for the Fund would end in 2006 and the Fund itself would be
terminated no later than 2013. After this legislation was passed, the Department
consolidated the UST Corrective Action Section, the UST Program Support
Section, and the State Assurance Fund Section into a new division, called the
Tank Programs Division. The Tank Programs Division plans to focus on
implementing the new legislation, increasing outreach efforts across the State,
increasing inspections and compliance, and streamlining the State Assurance
Fund.
Update of previous Waste Programs Division audits
The Office of the Auditor General has reviewed the State Assurance Fund and
aspects of the Waste Programs Division in previous audit reports. This report
updates some information found in those reports.
􀁺􇩓 State Assurance Fund—An audit in 1998 (Auditor General Report No. 98-4)
found that the Fund had a $48 million backlog of claims. This backlog was the
result of several factors, including insufficient revenues, high administrative
costs, and the Legislature sweeping some money from the Fund. The report
recommended some ways to reduce the backlog and also recommended that
the Legislature consider sunsetting the Fund. An audit in 1999 (Auditor General
Report No. 99-21) found that the backlog of claim payments had increased to
$55 million.
The current audit discusses the changes made by Laws 2004, Chapter 273 and
reports on additional changes the Department could make to increase
compliance with UST financial assurance requirements and to reduce costs to
the Fund (see Finding 1, pages 11 through 19).
􀁺􇩈 Hazardous Waste Enforcement—An audit in 1993 (Auditor General Report No.
93-8) found that the Hazardous Waste Section was slow to resolve enforcement
cases. The Section rarely used strong enforcement tools, which allowed
violations to continue for years without closure.
This audit finds that some of the same conditions present in 1993 still exist today
and that the Hazardous Waste Section could still improve its enforcement
activities. Specifically, this audit found that the Division could improve its
State of Arizona
page 4
timeliness for issuing enforcement actions and should escalate enforcement
actions to the next level when necessary (see Finding 2, pages 21 through 28).
􀁺􇩗 Water Quality Assurance Fund—WQARF has been included in several audits
performed by the Auditor General’s Office. Report No. 93-8, issued before
WQARF reform in 1997, found that the remediation of contaminated sites was
taking too long. Weak enforcement and a lack of funding contributed to this
problem. The report further detailed how the lack of funding for WQARF
adversely impacted work on remedial projects and recommended that the
Legislature reconsider funding for WQARF. Report No. 99-21 was completed
soon after the reforms of 1997, when it was still too early to assess the changes
made to the program. However, it was noted that the new proportional liability
standard would pose new challenges for the Department in regard to finding
responsible parties and recovering money from them.
This report details some of the progress made in cleaning up WQARF sites.
Further, it shows where the WQARF sites are in the cleanup process, the money
that the program has collected from potentially responsible parties, how much
money the program is spending on cleanup activities, and the appropriateness
of the program’s administrative costs (see Other Pertinent Information, pages 29
though 36).
􀁺􇨠 Solid Waste Inspections—A 1993 audit (Auditor General Report No. 93-8) found
that the Solid Waste Section had not met its goal of inspecting all active landfills
annually. Specifically, over one-third of active landfills had not been inspected in
1992. In addition, of those not inspected during 1992, nearly two-thirds had
gone more than 2 years between inspections.
Audit work conducted as part of this audit found that the Solid Waste Section
was still not meeting its annual inspection goal for active landfills. More than one-half
of the 37 landfills auditors reviewed had gone longer than 1 year since their
last inspection. Fifteen of these 37 landfills went more than 2 years since their
last inspection. Based on interviews with Solid Waste Section personnel,
auditors concluded that the primary reason the Division has not met the landfill
inspection goals is the time spent before the inspection creating and receiving
approval for facility-specific inspection checklists. The inspectors have been
spending considerable time creating these new checklists in order to perform
more thorough inspections. Division personnel stated that inspections at a
landfill are not conducted until the checklist is completed, reviewed, and
approved. Additionally, according to division management, during the audit, 14
of 35 staff positions in the Solid Waste Section were vacant because of funding
reductions. Four of these positions were in the Inspections and Compliance
Unit.1 Despite these reductions, the Division reported that it conducted 267
inspections of solid waste facilities in fiscal year 2003, and 41 of these were
landfill inspections.
The Solid Waste Section
is not meeting its goal to
inspect all active landfills
annually.
1 According to the Department, an additional position in the Inspections and Compliance Unit was abolished in April 2003
due to funding reductions.
Office of the Auditor General
page 5
State of Arizona
page 6
Budget and funding
As illustrated in Table 1 (see page 7), the Division received $33.3 million in fiscal year
2003. Of this, $19.8 million came from the Division’s portion of corporate income
taxes, water use taxes, fines and forfeits, and fees deposited into the Water Quality
Assurance Revolving Fund (WQARF), as well as monies from WQARF’s available
fund balance. An additional $4.5 million came from the State Assurance Fund for
costs including administration of the Fund and cleanup of leaking UST sites through
the state-lead program. Additionally, the Division received $4.2 million in federal
grants; $3.2 million in licenses, permits, and other fees; and $1.3 million in State
General Fund appropriations.
The Water Quality Assurance Revolving Fund is administered within the Division. As
illustrated in Table 2 (see page 8), WQARF received $15.5 million in fiscal year 2004.
Ten million dollars came from corporate income taxes, and $2.2 million came from
taxes assessed on businesses operating municipal water delivery systems.
Additionally, $1.5 million came from licenses, fees, and permits, while $1.6 million
came from cleanup costs recovered from parties for contamination cleaned up by
the WQARF program.
This audit also looked at the State Assurance Fund, which provides funding to help
UST owners and operators clean up contamination caused by leaking USTs. As
illustrated in Table 3 (see page 9), the State Assurance Fund received $29.3 million
in fiscal year 2004; $28.7 million of these revenues came from the $.01 excise tax on
USTs regulated by the Department, and approximately $630,000 came from
investment interest.
Scope and methodology
This audit focused on additional changes the Department could make to the State
Assurance Fund, the timeliness of the Division’s enforcement actions against
hazardous waste facilities, and the status of the WQARF program. This audit report
presents two findings and associated recommendations:
􀁺􇨠 Legislative changes have been made to the State Assurance Fund, but the
Department should take additional actions (see Finding 1, pages 11 through
19); and
􀁺􇩔 The Division should more quickly resolve enforcement actions against
hazardous waste facilities and their responsible parties (see Finding 2, pages 21
through 28).
Office of the Auditor General
page 7
Table 1: Waste Programs Division
Schedule of Revenues and Expenditures1
Years Ended June 30, 2002 and 2003
(Unaudited)
2002 2003
Revenues:
State General Fund appropriations $ 1,250,759 $ 1,335,701
Water Quality Assurance Revolving Fund 2 25,764,626 19,766,648
State Assurance Fund 3 5,100,706 4,498,121
Federal grants 4,428,573 4,218,803
Licenses, permits, and other fees 2,909,274 3,156,544
Interest 271,066 178,763
Miscellaneous 359,942 137,890
Total revenues 40,084,946 33,292,470
Expenditures:4
Personal services and related benefits 10,048,614 9,582,809
Professional and outside services 24,779,392 19,329,567
Travel 224,753 193,556
Aid to organizations 187,569
Other operating 708,832 457,678
Equipment 68,621 82,289
Allocated costs 4,248,734 4,193,937
Total expenditures 40,266,515 33,839,836
Excess of revenues (under) expenditures (181,569) (547,366)
Net operating transfers out 726,924 664,200
Excess of revenues and operating transfers in (under) expenditures
and operating transfers out 5 $ (908,493) $ (1,211,566)
1 This schedule presents revenues and expenditures of the Division’s operations. However, 2004 estimates are not
readily available because the Department’s budgets are based on its appropriated budget units and are not
consistent with the format of this schedule. In addition, the Northern and Southern Offices’ waste-related
expenditures are not included in this table because the Department does not allocate expenditures among its
divisions. These offices conduct water, waste, and air activities and have expenditures of approximately $4.1
million.
2 Primarily consists of the Division’s portion of corporate income taxes, water use taxes, fines and forfeits, and fees
deposited in the Water Quality Assurance Revolving Fund (WQARF), as well as its available fund balance. See
Table 2, page 8 for WQARF’s financial table.
3 Consists of the Division’s portion of underground storage tank contents taxes deposited in the State Assurance
Fund. See Table 3, page 9 for the State Assurance Fund’s financial table.
4 Includes administrative adjustments from the prior year.
5 The excess of revenues under expenditures was paid by the Division’s available fund balance.
Source: Auditor General staff analysis of the Arizona Financial Information System (AFIS) Accounting Event
Transaction File for the years ended June 30, 2002 and 2003.
State of Arizona
page 8
Table 2: Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
2002 2003 2004
Revenues:
Corporate income taxes 1 $ 5,000,000 $10,000,000 $10,000,000
Water use taxes 2 2,213,435 2,150,995 2,197,184
Licenses, fees, and permits 3 1,452,229 1,582,917 1,460,237
Fines and forfeits 4 778,299 3,492,112 1,633,482
Interest on investments 1,001,409 279,007 194,036
Other 43,417 5,400 9,078
Total revenues 10,488,789 17,510,431 15,494,017
Expenditures:5
Personal services and related benefits 3,536,331 3,186,440 3,526,784
Professional and outside services 21,156,559 16,494,581 12,270,212
Travel 93,370 95,228 94,419
Aid to individuals and organizations 178,956 11,589
Other operating 751,545 412,229 327,937
Equipment 22,679 28,119 66,858
Allocated costs 6 1,765,056 1,584,515 1,538,825
Total expenditures 27,504,496 21,801,112 17,836,624
Excess of revenues under expenditures (17,015,707) (4,290,681) (2,342,607)
Net operating transfers out 7 (1,371,503) (816,000) (2,885,107)
Excess of revenues and transfers in (under) expenditures
and transfers out (18,387,210) (5,106,681) (5,227,714)
Fund balance, beginning of year 33,222,404 14,835,194 9,728,513
Fund balance, end of year $14,835,194 $ 9,728,513 $ 4,500,799
1 Consists of corporate taxes transferred to the Department in accordance with A.R.S. §49-282; however, the statutory formula for
funding provided was temporarily suspended by Laws 2002, Chapter 328 and Laws 2003, Chapter 263, and the Department was
appropriated $5 million in 2002 and $10 million in 2003 and 2004.
2 Taxes are assessed on businesses operating municipal water delivery systems in accordance with A.R.S. §42-5302.
3 Includes fees for prospective purchaser agreements, water quality assurances, fertilizer licenses, and manifest resubmittals, and for
hazardous waste facility, hazardous waste resource recovery facility, industrial discharge, and pesticide registrations.
4 Consists of remedial action costs recovered from responsible parties.
5 Includes administrative adjustments from the prior year.
6 Amount is the portion of department-wide overhead expenditures allocated to the Water Quality Assurance Revolving Fund.
Examples include administrative personnel, rent, general accounting, telecommunications system, and risk management costs.
7 Consists primarily of transfers to the Department of Health Services, Department of Water Resources, and Attorney General’s Office
for WQARF-related activities. In addition, 2002 includes $167,779 of corporate taxes returned to the State General Fund, and 2004
includes a $2.5 million transfer from the Air Quality Fund and a $5 million transfer to the State General Fund, as required by Laws
2003, Chapter 262.
Source: Auditor General Staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File and Trial
Balance by Fund report for the years ended June 30, 2002, 2003, and 2004.
Office of the Auditor General
page 9
Table 3: State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 2002 through 2004
(Unaudited)
2002 2003 2004
Revenues:
Underground storage tank contents tax $ 27,819,119 $ 27,769,151 $28,651,812
Interest on investments 1,228,818 873,330 630,492
Other 59,604 99,911 55,130
Total revenues 29,107,541 28,742,392 29,337,434
Expenditures and operating transfers out:1
Personal services and related benefits 3,376,361 3,427,747 3,475,659
Professional and outside services 1,615,564 1,262,392 1,574,431
Travel 30,326 22,918 22,534
Aid to individuals and organizations 2 14,553,442 17,400,672 29,258,872
Other operating 230,464 166,220 158,358
Equipment 26,641 41,898 35,285
Allocated costs 3 1,685,752 1,688,338 1,711,414
Total expenditures 21,518,550 24,010,185 36,236,553
Operating transfers out 20,000 6,020,000 4 20,000
Total expenditures and operating transfers out 21,538,550 30,030,185 36,256,553
Excess of revenues and transfers in over (under) expenditures and
transfers out 7,568,991 (1,287,793) (6,919,119)
Fund balance, beginning of year 39,862,805 47,431,796 46,144,003
Fund balance, end of year $ 47,431,796 $ 46,144,003 $39,224,884 5
1 Includes administrative adjustments from the prior year.
2 Reimbursement for leaking underground storage tank cleanup costs to owners/operators.
3 Amount is the portion of department-wide overhead expenditures allocated to the State Assurance Fund. Examples include
administrative personnel, rent, general accounting, telecommunications system, and risk management costs.
4 Includes $6 million transferred to the State General Fund in accordance with Laws 2003, Chapter 1.
5 Amount is designated for payments to claimants for cleanup costs and program operating expenditures, except for $6 million that is
reserved for a long-term loan to the Regional Public Transportation Authority.
Source: Auditor General Staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File and Trial
Balance by Fund report for the years ended June 30, 2002, 2003, and 2004.
Various methods were used to study the issues addressed in this audit. General
methods used for all areas included interviews with department management and
staff, as well as interviews of representatives from two advisory bodies related to the
audit areas. Additionally, auditors obtained information from representatives of the
EPA and the Arizona Attorney General’s Office. Finally, auditors reviewed Arizona
Revised Statutes, the Arizona Administrative Code, the Code of Federal Regulations,
and the Department’s Compliance and Enforcement Handbook.
The following specific methods were used in reviewing each area:
􀁺􇨠 To determine whether there were any changes the Department should make to
the State Assurance Fund, auditors analyzed the changes made to the Fund by
Laws 2004, Chapter 273, which provided for the termination of fund eligibility in
2006 and for the termination of the Fund itself no later than 2013. Additionally,
auditors obtained information regarding the degree of compliance with UST
financial assurance requirements. Finally, an auditor attended meetings of key
UST stakeholders in which they addressed various issues related to the UST
program.
To determine the Fund’s financial status and the status of the claims processing
backlog in the SAF section, auditors obtained, validated, and analyzed data
from the State Assurance Fund, spanning from the Fund’s inception to January
2004.
􀁺􇩔 To determine whether the Hazardous Waste section has taken enforcement
actions in a timely manner, auditors obtained, validated, and analyzed data from
the Hazardous Waste Program’s two inspection, compliance, and enforcement
databases.1 Auditors also reviewed documentation for 127 enforcement actions
to determine whether the Department was meeting its responsibility regarding
the timeliness of issuing, escalating, and resolving enforcement actions.
Additionally, auditors attended two internal agency meetings regarding
compliance and enforcement, as well as two agency roundtables, one held with
the regulated community, and one with the environmental community.
􀁺􇨠 To obtain information on the Water Quality Assurance Revolving Fund, auditors
reviewed program documents regarding work done on sites within the WQARF
program.
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the director, division director,
and staff of the Department of Environmental Quality for their cooperation and
assistance throughout the audit.
State of Arizona
page 10
1 The two databases auditors obtained information from are ICE (Inspections, Compliance, and Enforcement) and the
Hazardous Waste Inspections database.
Office of the Auditor General
page 11
A minimum level of
financial assurance for
USTs is required.
Changes made to the State Assurance Fund, and
Department should take additional actions
The Legislature recently made some significant changes to the State Assurance
Fund (Fund), and the Department should take additional actions to increase
compliance with financial assurance requirements and to reduce costs to the Fund.
Created in 1990, the Fund provides owners and operators of leaking underground
storage tanks (USTs) with funding to clean up contaminated sites. In May 2004, the
Legislature made several important changes to the Fund, including ending eligibility
for the Fund in 2006 and creating a Regulated Substance Fund to succeed the State
Assurance Fund. The Regulated Substance Fund will provide coverage for leaking
USTs whose owners cannot be located, and is slated to receive up to $60 million in
transfers from the State Assurance Fund for this purpose.
However, the Regulated Substance Fund may not receive the entire $60 million if
paying all claims to the Fund requires additional time beyond July 1, 2011. The
Department should take further action to ensure that UST owners comply with federal
and state financial assurance requirements. Finally, the Department should make
some changes to reduce costs to the Fund.
Fund provides coverage for leaking USTs
The Legislature created the Fund in 1990 to help UST owners and operators meet
federal and state requirements for financial responsibility. These regulations require
that UST owners and operators acquire a minimum level of financial assurance to
cover costs associated with the cleanup of leaking USTs. UST owners and operators
are required to have at least $500,000 of coverage for each UST leak, and $1 million
of coverage for individual leaks on tanks meeting certain location and size
requirements. UST facilities must also have annual aggregate coverage, a minimum
level of coverage for the total amount of cleanup needed in a 1-year period. For
facilities with 100 or fewer USTs, at least $1 million in annual aggregate coverage is
FINDING 1
State of Arizona
page 12
1 The legislation became effective August 25, 2004.
required, while facilities with more than 100 USTs must have at least $2 million in
annual aggregate coverage. These coverage amounts include both cleanup costs
and third-party liability. The Fund partially fulfills these requirements by providing
qualifying owners of leaking USTs up to $500,000 per leak, or $1 million in certain
instances. However, the Fund does not provide third-party liability coverage,
including damage caused to another owner’s property due to a UST leak.
Although this assurance could normally be provided through private insurance, in the
late 1980s private insurance became less available as insurers declined to continue
writing policies. The Fund was intended to help fill the gap created by declining
insurance availability. However, insurance is currently available and affordable, and
most UST owners and operators who are in compliance with financial assurance
requirements have private UST insurance. Other ways to meet this requirement
include self-insurance and a surety bond.
The Fund’s revenue is provided by an excise tax of $.01 per gallon on most regulated
underground storage tanks (USTs), based on the quantity of regulated substances
placed in a tank in any calendar year. The Arizona Department of Transportation
(ADOT) collects this excise tax from owners and operators of Arizona USTs and
transfers it, less an administrative fee, to the Fund. In fiscal year 2003, fund revenues
totaled approximately $29 million.
The State also uses the Fund to pay for its state-lead program. The state-lead
program cleans up contaminated orphan sites, which are sites whose owner cannot
be located, because, for example, the owner is deceased. The state-lead program
also takes cleanup responsibility for sites whose owners do not have the financial
capacity to pay for the cleanup or are unwilling to do so. If an owner is unwilling to
pay for cleanup, the state-lead program will perform the cleanup and then attempt to
recover the costs.
Recent legislation significantly changed the Fund
In May 2004, Laws 2004, Chapter 273 was enacted, which made several important
changes to the Fund.1 Specifically, the legislation provided that UST owners and
operators can use the Fund for cleanup coverage before accessing their private
financial assurance. Additionally, the legislation set an eligibility end date of June 30,
2006. After this date, UST releases are no longer eligible for coverage from the Fund.
Further, the legislation set a termination date for the Fund itself, as well as the excise
tax that funds it. Finally, the legislation created a Regulated Substance Fund to begin
operation after the State Assurance Fund is terminated. The Regulated Substance
Fund will provide for the cleanup of USTs whose owners cannot be located or are
financially unable to provide for cleanup.
Office of the Auditor General
page 13
UST leaks reported after
June 30, 2006, are
ineligible for fund
coverage.
1 Prior to Laws 2004, Chapter 273, UST owners and operators who met their financial assurance requirements through
methods other than private UST insurance, such as companies that used self-insurance, were not required to use their
own financial assurance before accessing the Fund.
Fund now pays for cleanup before insurance—The May 2004 legislation
now allows UST owners and operators to access the Fund before submitting claims
to their insurance. Prior to Laws 2004, Chapter 273, UST owners and operators who
had private UST insurance were required to file a claim with their insurance carrier
before they could access the Fund.1 However, this legislation changed that
requirement to allow owners and operators who use private insurance to meet
financial assurance requirements to access the Fund for coverage up to $500,000
before they file a claim with their insurance carrier. Further, this modification is
retroactive to December 31, 2002. Consequently, owners and operators can now
reapply for fund coverage if their fund application was denied on or after December
31, 2002, because of failure to first file a claim with their private insurance.
Although recent legislation now allows owners and operators to access the Fund
prior to filing a claim with their insurance carrier, some owners and operators can
receive additional monies from the Fund if they file a claim with their insurance carrier
first. If owners and operators access the Fund first, they can only receive fund
coverage up to $500,000 and then need to rely on their insurance, which, according
to a department representative, normally provides another $1 million of coverage. If
the cost of cleaning up their contaminated site exceeds $1.5 million—which is the
combined coverage provided by the Fund and the insurance—the owner becomes
responsible for paying the additional costs. However, owners and operators are
eligible for up to a total of $1 million of fund coverage if they exhaust any financial
assurance they possess before attempting to access the Fund, which provides them
with at least $2 million in combined coverage.
Eligibility for the Fund ended—In addition to allowing UST owners and
operators to access the Fund before filing a claim with their own private insurance,
Laws 2004, Chapter 273 set June 30, 2006, as the final day that UST leaks can be
reported to the Department and still be eligible for cleanup coverage from the Fund.
Owners and operators of leaking USTs will need to access their alternative financial
assurance mechanism, such as private UST insurance, after that date. However,
those who report releases before the eligibility end date will be given additional time
to submit applications for coverage. For example, an application for pre-approval of
cleanup costs must be submitted by June 30, 2009. Applications for direct payments
of pre-approved costs and for reimbursement of cleanup costs must be submitted
by June 30, 2010. After this date, any application made, or expense incurred, related
to cleanup of a leaking UST will not be eligible for coverage.
Regulated Substance Fund to replace State Assurance Fund—Laws
2004, Chapter 273 also created the Regulated Substance Fund, which will succeed
the State Assurance Fund. The legislation did not create either an eligibility deadline
State of Arizona
page 14
or a termination date for the Regulated Substance Fund. The Regulated Substance
Fund will have two primary uses. First, it will pay for cleanup of releases from leaking
USTs called “orphan tanks,” whose owner or operator cannot be located within 90
days of the release. As mentioned previously, right now the Department handles
cleanup of orphan tanks through its state-lead program. Second, it will provide for
cleanup at any leaking UST site where monitored natural attenuation has been
approved by the Department as a cleanup technique before July 1, 2010.
Cleanups using monitored natural attenuation will be paid for through a separate
section of the Regulated Substance Fund called the Monitored Natural
Attenuation (MNA) account.
For the cleanup of leaking orphan tanks, the Regulated Substance Fund can
receive revenue from three sources. The first source is a transfer from the State
Assurance Fund. On July 1, 2011, the Department’s director is required to transfer
to the Regulated Substances Fund all monies remaining in the State Assurance Fund
if all of its eligible claims have been paid. A possible second source is the $.01 per
gallon excise tax. If the amount transferred to the Regulated Substance Fund is less
than $60 million, it will receive revenue from the excise tax until it reaches $60 million,
or until the excise tax expires on December 31, 2013.1 The Fund is statutorily limited
to receiving no more than a total of $60 million in revenues from the State Assurance
Fund transfer and the excise tax.2 The third source is an amount equal to co-pays
made by people who volunteer to clean up leaking USTs.3 This amount will go into
the State Assurance Fund, but will be tracked by the Department. If the State
Assurance Fund has more than $60 million when all eligible claims have been paid,
then this amount can also be transferred to the Regulated Substance Fund.
The Fund’s MNA account will receive funding through a different source. The MNA
account will be funded by monies set aside by the Department’s Director from the
State Assurance Fund on or before June 30, 2011. The monies in the MNA account
are separate from monies in the Regulated Substance Fund for the cleanup of
orphan tanks. Therefore, monies set aside for funding cleanups using monitored
natural attenuation cannot be used to cleanup orphan tanks.
Monies available for orphan tank cleanup may be limited—Although the
Regulated Substance Fund’s revenues for the cleanup of orphan tanks may be in
excess of $60 million, it could receive far less than this amount. As stated above, the
legislation allows the director to transfer funds from the State Assurance Fund to the
Regulated Substance Fund on July 1, 2011, only if all eligible applications to the State
Assurance Fund have been paid. However, according to a department official,
paying all the applications may require additional time beyond July 1, 2011. For
1 However, the State Assurance Fund and the excise tax end on December 31, 2013, even if the Regulated Substance
Fund has not yet reached $60 million.
2 If the State Assurance Fund has more than $60 million at the time of the transfer, the amount beyond $60 million will go
to the State’s General Fund.
3 However, Laws 2004, Chapter 273 provides that a volunteer’s co-pay is waived if the value of the property where the
leaking tank is located is less than the volunteer’s 10 percent co-pay.
Monitored natural attenuation is
the use of natural processes,
such as chemical breakdown by
microorganisms, to clean up
contamination at a UST site.
Office of the Auditor General
page 15
A report on the Fund’s
anticipated liability is
required by September
1, 2009.
example, additional time may be required if the State Assurance Fund sees a
significant number of groundwater contamination claims. According to the
department official, groundwater contamination generally takes longer to address
than contamination of soil. If additional time is needed to pay these claims, the State
Assurance Fund will continue to receive monies from the excise tax until all of its
claims are paid. This would limit the amount of excise tax revenues the Regulated
Substance Fund would receive since the excise tax will expire no later than
December 31, 2013, regardless of whether the Regulated Substance Fund has
reached $60 million.
In fact, the Regulated Substance Fund could potentially receive no funding at all for
orphan tank cleanup. By law, the State Assurance Fund will be terminated when all
of its claims are paid, and the Regulated Substance Fund receives $60 million from
any combination of a transfer from the State Assurance Fund and excise tax
revenues. However, if any State Assurance Fund claims remain unpaid as of
December 31, 2013, then the State Assurance Fund will terminate without the
Regulated Substance Fund receiving either a transfer of funds or any excise tax
revenues. Additionally, this would result in some approved cleanups of UST leaks
that will not receive their full funding.
This possible lack of funding could be averted. Laws 2004, Chapter 273 requires that
the Department’s director submit a report on the State Assurance Fund’s anticipated
liability to the President of the Senate and the Speaker of the House by September
1, 2009. If this report finds that the liabilities to the Fund will likely prevent the director
from transferring monies to the Regulated Substance Fund in July 2011, the
Legislature could consider extending the excise tax beyond December 31, 2013, so
that the Regulated Substance Fund revenues could reach $60 million.
Additionally, according to a department official, if the Regulated Substance Fund
does not receive adequate funding to perform orphan tank cleanup, the Department
will monitor contaminated orphan sites to assess whether they pose a threat to
human health. If the contamination at the sites does pose a threat to human health
and necessary cleanup funds from the Regulated Substance Fund are unavailable,
the Department may begin active cleanup using funds from the Water Quality
Assurance Fund (WQARF). Agency officials have indicated that WQARF funds would
be used as a last resort.
Greater compliance needed when Fund eligibility ends
To ensure compliance with financial assurance requirements, the Department should
continue to take steps to strengthen its compliance efforts, including taking formal
enforcement actions as necessary. Currently, tank owners and operators have a
relatively low rate of compliance with financial assurance requirements. Compliance
State of Arizona
page 16
with financial assurance regulations will become even more important as eligibility for
the State Assurance Fund ends.
Full compliance with financial assurance requirements has not been
achieved—Although required by federal and state regulations, many UST facilities
do not comply with financial assurance requirements. As mentioned previously,
current federal and state regulations require that UST owners acquire at least
$500,000 and up to $1 million of financial assurance to cover costs associated with
a UST leak. However, according to the Department, as of January 2004, only 62
percent of UST facilities were in compliance with federal and state financial
assurance requirements.
There are two primary reasons why compliance with the financial assurance
regulations is low. First, according to a department representative, prior to October
2003, the Department did not enforce compliance with financial assurance
requirements unless a noncompliant facility became the subject of another
enforcement action. The Department reports that limited resources hampered its
ability to take timely enforcement action against these facilities, and instead it
prioritized enforcing UST regulations and assisting UST owners and operators in
complying with these regulations. Second, according to this representative, the
compliance rate is low because some owners and operators erroneously think that
the Fund fully covers their financial assurance requirements. However, owners and
operators who must provide $1 million in financial assurance, but who only qualify for
$500,000 in coverage from the Fund, are responsible for providing another $500,000
in additional financial assurance through some other means, such as private
insurance or self-insurance. Also, as mentioned previously, the Fund does not cover
third-party liability.
Consequences of noncompliance with financial assurance
requirements—The lack of compliance with financial assurance requirements
could have financial repercussions for the State. When eligibility for the Fund ends,
owners and operators who do not maintain the required level of financial assurance
may not have the financial ability to clean up leaking USTs. As a result, the State may
be liable for the future cleanup of these additional contaminated sites through either
the Department’s state-lead program or the Regulated Substances Fund. As
eligibility for the Fund is ending, the State can reduce its potential future liability by
ensuring that all UST owners and operators meet financial assurance requirements.
Steps recently taken to increase compliance with financial
assurance requirements—The Department has recently taken steps to reduce
this potential for liability to the Fund by enacting a more proactive approach to
ensuring compliance with financial assurance requirements. At the June 2003 UST
Conference, the Department announced a renewed enforcement effort to ensure
compliance with financial responsibility requirements. According to the Department,
this announcement was followed by a postcard sent to all owners and operators
The State can reduce its
potential future liability
by ensuring compliance
with financial assurance
requirements.
Office of the Auditor General
page 17
outlining the requirements. In addition, in the fiscal year 2005 budget, the Legislature
at the Department’s request made funding available for two inspectors and an
administrative assistant who will address inspections and compliance needs at UST
facilities throughout the State, including enforcing financial responsibility
requirements. Since October 2003, the Department reports having sent a letter to all
owners and operators whose facilities had been out of compliance for more than 90
days and whose addresses were known. The Department also updated its database
with new addresses as they were identified. As of June 2004, 437 of 497
noncompliant owners and operators (88 percent) had received a letter from the
Department informing them of their status and reminding them of their need to attain
compliance. Also, in October 2003, the Department began a policy of mailing
enforcement actions to owners and operators of noncompliant facilities. The
Department believes this approach has resulted in an increase in the compliance
rate from 52 percent of UST facilities in October 2003 to 62 percent in January 2004.
Additionally, in April 2004, the Department began performing complete inspections
of those facilities that did not comply with their financial assurance requirements after
having received a reminder letter. The Department should continue to work on
increasing compliance with financial assurance requirements, including pursuing
formal enforcement actions, such as consent orders and compliance orders, as
necessary.
Fund costs could be reduced
While the Department continues to pay claims from the State Assurance Fund, it
could take steps to reduce costs incurred by the Fund. First, it should reassess
the cost ceilings used for payment of cleanup costs. Second, it should
examine the feasibility of using the competitive bidding model the state-lead
program uses.
High cost ceilings should be reassessed—Some UST stakeholders
believe that the cost ceilings are too high. The cleanup of leaking UST sites is
typically performed by private consultants hired by the owner or operator, or
by a fund volunteer. These consultants bill the Fund for the cleanup work that
is performed, but there are limits, called cost ceilings, on the amount that consultants
can bill the Fund for various cleanup activities. However, key UST stakeholders
convened by the director believe that cleanup costs are inflated to the point that the
cost ceilings are no longer the upper limit, but have become the going price of the
cleanup work. The Department should assess the cleanup costs charged to the
Fund to see if contractors are routinely charging at the cost ceilings. If so, the
Department should consider revising its cost ceilings to better reflect the true cost of
cleanup work.
Cost ceilings—The
maximum cost that the
State Assurance Fund will
pay for activities related to
the cleanup of leaking
USTs.
Some stakeholders
believe that cost
ceilings are used as
the actual price of
cleanup work.
State of Arizona
page 18
Additionally, according to fund management, fund cost ceilings themselves are
higher than they should be because a flawed method was used to create them. The
cost ceilings are based on a 2000 cost survey of various consultants in the field of
UST cleanup, and are adjusted for inflation in the intervening years before the next
cost survey is conducted. However, in the 2000 survey, respondents were allowed to
answer questions that did not pertain to their occupation, and this may have resulted
in an inaccurate estimate of the true costs for particular activities. For example, tank
installers were allowed to answer questions about lab testing costs, which they were
unfamiliar with. Further, the Fund pays some general business costs that appear to
be unreasonably high. For example:
􀁺􇩉 In 2004, the Fund can pay up to $2 per mile for a cleanup consultant’s travel
costs.
􀁺􇩉 In 2004, the Fund can pay up to $47 per hour for clerical and support work done
by a cleanup consultant’s administrative assistant.
The Department will be creating new cost ceilings for use beginning in July 2005.
However, according to a fund official, the Department has not yet decided whether it
will perform a new cost survey to create the cost ceilings, or whether it will simply
update the 2004 cost ceilings with information from the Bureau of Labor Statistics. If
the Department performs a new cost survey, it should be careful to ensure that it
uses an appropriate methodology and does not allow respondents to answer
questions that do not pertain to their occupation.
Competitive bidding may be an option—Another possible way of reducing
costs is by implementing competitive bidding. This would require owners and
operators to solicit multiple bids for cleaning up a contaminated UST site. By
instituting competitive bidding, the Department would likely be able to use the market
to control costs rather than relying on a cost ceilings that need to be updated.
Arizona’s UST owners and operators are not required to solicit bids from cleanup
consultants before choosing one to clean up a contaminated site. However, the
Department’s UST state-lead program uses competitive bidding for its projects and
reports costs at approximately 60 percent of the cost ceilings. Requiring competitive
bidding for all owners and operators would require a statutory change. The
Department should examine the feasibility of instituting competitive bidding as a
possible method of controlling costs incurred by the State Assurance Fund.
Recommendations
1. The Department should continue to work on increasing compliance with
financial assurance requirements, including pursuing formal enforcement
actions, such as consent orders and compliance orders, as necessary.
2. The Department should assess the cleanup costs charged to the State
Assurance Fund to see if cost ceilings are being treated as the actual price of
cleanup costs rather than as an upper limit for costs.
3. If contractors are routinely charging at the cost ceilings for certain cleanup
activities, the Department should consider revising cost ceilings to better reflect
the true cost of cleanup work.
4. If the Department performs a cost survey to create the cost ceilings that will be
effective beginning in July 2005, it should use an appropriate methodology and
not allow respondents to answer questions that do not pertain to their
occupation.
5. The Department should examine the feasibility of instituting competitive bidding
as a method of controlling State Assurance Fund costs.
Office of the Auditor General
page 19
State of Arizona
page 20
Office of the Auditor General
page 21
Division should improve its hazardous waste
enforcement efforts
The Waste Programs Division (Division) should more quickly issue, escalate, and
resolve enforcement actions against hazardous waste facilities and their responsible
parties that are out of compliance with standards. The Division is responsible for
ensuring that all hazardous waste in Arizona is stored, transported, and disposed of
properly. It is important for hazardous waste to be managed properly because it can
represent a significant public health threat. However, the Division sometimes takes
several months to issue an enforcement action when it finds a violation. Although the
Division informs the facility of serious violations in writing at the time of the inspection,
the Division does not do so for less serious violations. Further, it does not always
escalate enforcement actions when responsible parties do not correct their violations
and return to compliance. To improve in this area, the Division should take several
steps. First, it should streamline the approval process for issuing the enforcement
actions resulting from major violations. In addition, it should better track the status of
its enforcement actions. Finally, it should escalate enforcement actions to the next
level as necessary against responsible parties that have not corrected their violations.
Division regulates through inspections and enforcement
actions
The Hazardous Waste Section of the Division is responsible for regulating hazardous
waste facilities, including those facilities that generate, treat, store, or dispose of
these types of materials. The Division regulates these facilities by issuing permits,
conducting periodic inspections, and taking enforcement action when a violation is
identified.
The Division classifies violations identified during inspections as either major or
minor. Major violations are those that pose risk to human health and the environment.
An example of a major violation is a responsible party’s failure to correctly identify
FINDING 2
Major violations pose
risk to human health
and the environment.
State of Arizona
page 22
waste it produces and ships off-site for disposal, which could result in hazardous
substances being improperly disposed of and possibly entering the environment. In
contrast, minor violations are those that pose a minimal risk to human health and the
environment, such as responsible party’s failure to pay a hazardous waste fee. For
minor violations, the Division may take an informal enforcement action. For example,
the Division may send the responsible party a “Notice of Opportunity to Correct”
(NOC), which explains the violation and the action the responsible party needs to
take to verify return to compliance.
In contrast, for a major violation, the Division may take either an informal or a formal
enforcement action, such as issuing a Notice of Violation (NOV), or an administrative
Enforcement Actions
Informal Actions:
Notice of Opportunity to Correct Deficiencies (NOC)—Puts the responsible party on notice that the
Division believes a nonsignificant violation of an environmental law has occurred.
Notice of Violation (NOV)—Puts the responsible party on notice that the Division believes a
significant violation of environmental law has occurred.
Formal Actions:
Administrative Order—Orders entered into between the Department1 and the responsible party.
􀁺􇩃 Compliance Order—A unilateral order issued by the Department1 without input from the
responsible party. It is an appealable action.
􀁺􇩃 Consent Order—A bilateral written order issued with the complete agreement of the responsible
party and the Department.1 It is not an appealable action.
􀁺􇩌 License Suspension/Revocation—Suspension or revocation of a responsible party’s license for a
specified period of time. It can be issued bilaterally or unilaterally. If issued unilaterally, it can
be appealed.
Civil Referral—Referred by the Department to the Attorney General’s Office1:
􀁺􇩔 Temporary Restraining Order/Preliminary Injunction
􀁺􇩐 Permanent Injunction/Civil Penalty
􀁺􇩃 Consent Judgment/Consent Decree—A negotiated settlement of a civil complaint
Criminal Referral—The State’s authority for prosecution of environmental crimes lies exclusively with
the Attorney General’s Office, but the Department assists by gathering evidence.
1 Although signed by the division director, this enforcement action requires department director approval before it is
issued to the responsible party.
Source: Auditor General staff summary of the Department’s Compliance and Enforcement Handbook.
Office of the Auditor General
page 23
order, or referring the action to the Attorney General’s Office for civil or criminal action.
The enforcement process also requires the inspector to follow up to ensure the
responsible party corrects the violation and returns to compliance. If a responsible
party has not corrected the violation within the specified time frame, division policy
recommends that it escalate the enforcement action. For example, if the Department
issued an NOV for the violation, the Division could escalate the action to an
administrative order, and then to a referral for a civil action. In each case, the
enforcement action taken by the Division depends on the severity of the violation and
is not necessarily issued in order of the actions listed on page 20. For example, for
relatively minor violations, the Division could choose to issue an NOC or an NOV, and
if the responsible party does not correct the violations in a timely manner, the Division
could escalate the action to any one of the formal actions. In contrast, for more
serious violations, the Division could choose to issue a formal enforcement action
without first issuing an informal action. As shown on the list of enforcement actions
on page 20, this formal action could be either an administrative order, a civil referral,
or a criminal referral.
Division should improve enforcement timeliness
The Division should improve the timeliness of issuing enforcement actions. For many
cases from July 1, 2000, to November 30, 2003, the Division failed to issue
enforcement actions within its policy of 45 days after it identified the violation, and
some actions took longer than 90 days. While the Division’s timeliness of issuing
informal enforcement actions improved in fiscal year 2003 compared to fiscal year
2002, it was worsening in the first half of fiscal year 2004. Some of the more recent
delays may be attributable to recent changes in division policy, one of which requires
that more people approve issuing such actions.
Division should issue enforcement actions more quickly—The Division
should review and issue its enforcement actions more quickly, to help responsible
parties return to compliance as quickly as possible and minimize the risk to human
health and the environment. The Department’s policy requires the Division to send
the NOC or NOV to the responsible parties within 45 calendar days of the inspection
during which the violation was identified. However, as illustrated by Table 4 (see page
24), the Division does not always meet this goal. For example, between July 1 and
November 30, 2003, the Division issued only 26 percent of its NOCs and NOVs within
the prescribed 45 calendar days. Further, the Division has taken longer than 90 days
to issue some enforcement actions. For example, between July 1 and November 30,
2003, the Division issued 23 percent of its NOCs and NOVs after 90 days. Although
the Division immediately notifies the facility of serious violations and the requirements
to correct those violations at the time of the inspection through an Exit Debriefing
Form, this briefing is not as detailed and inclusive as the official enforcement action.
Further, the responsible party may be unaware of the details for compliance
regarding less serious violations. Consequently, the responsible party may remain
out of compliance longer.
State of Arizona
page 24
Recent changes to review process may contribute to delays—The
Department recently changed its process for reviewing and approving NOVs by
requiring division director approval. As of February 2003, most NOVs that result from
major violations must be reviewed by two additional people. Additionally,
enforcement actions are usually routed back to the originator for finalization before it
is sent to the responsible party.
Further, no specific time frames are given to each person in the routing process to
review and approve the enforcement action. Not only are more people required to
review and approve these enforcement actions, but because there is no individual
time frame guidance the enforcement action can sit on each person’s desk for a
week or longer. The combination of more people in the process and no individual
time frame guidance can negatively impact the issuance of enforcement actions.
Therefore, the Division should explore ways to streamline its review and approval
process for enforcement actions. For example, it should examine the process and
eliminate any steps that are not necessary. In addition, it should consider developing
specific time frames for each step in the review and approval process.
Table 4: Hazardous Waste Section
Timeliness of Issuing Informal Enforcement Actions
Fiscal Years 2001 through 2004
Number Issued
Fiscal
Year
Type
Total
Issued
Within 45
Calendar Days
Between 46 and 90
Calendar Days
Beyond 90
Calendar Days
2001 NOC 13 5 3 5
NOV 17 7 5 5
Total 30 12 8 10
2002 NOC 10 2 6 2
NOV 63 19 24 20
Total 73 21 30 22
2003 NOC 7 5 1 1
NOV 49 25 18 6
Total 56 30 19 7
20041 NOC 22 7 10 5
NOV 21 4 12 5
Total 43 11 22 10
1 Statistics presented are from July 1, 2003 through November 30, 2003.
NOC = Notice of Opportunity to Correct Deficiencies
NOV = Notice of Violation
Source: Auditor General staff analysis of the Division’s inspections database (Paradox) and the Inspections,
Compliance, and Enforcement (ICE) database.
Office of the Auditor General
page 25
Division should ensure facilities correct violations
According to department management, compliance is the ultimate goal for the
Division. To help achieve this goal, the Division frequently establishes a more
aggressive return-to-compliance time frame requirement for violators than provided
for in the Department’s Compliance and Enforcement Handbook. Once the Division
has issued an enforcement action, however, it does not always ensure that the
responsible party returns to compliance within the time frame specified in the action.
Also, when responsible parties exceed these prescribed time frames, the Division
does not always escalate the enforcement actions according to its policies.
Improvements in tracking enforcement actions could help remedy this situation.
Some facilities do not return to compliance in a timely manner—Some
responsible parties that the Division has taken an informal enforcement action
against do not return to compliance in a timely manner. According to division policy,
a responsible party receiving an NOC should return to compliance within 180 days,
and a responsible party receiving an NOV should return to compliance within 120
days.1 The Division can—and usually does—direct responsible parties to correct
violations in a much shorter time frame. Auditors examined 99 enforcement actions
issued in fiscal years 2003 and 2004 and found the Division directed the responsible
parties to come into compliance in 5 to 90 days, with the most frequent time frame
being 30 days. As Table 5 (see page 26) shows, 35 of the 99 (35 percent) responsible
parties issued enforcement actions from July 1, 2002 through November 30, 2003,
did not return to compliance within these shortened time frames specified in the
actions. In some instances, it has taken more than a year for the responsible party to
return to compliance. For example, there were six cases from fiscal years 2001 and
2002 that were still open as of November 30, 2003.
In addition to not ensuring that all informal enforcement actions are resolved in a
timely manner, the Division may not ensure that all formal enforcement actions are
resolved in a timely manner. In contrast to informal actions, which usually involve
violations posing less risk to humans and the environment, formal enforcement
actions usually deal with significantly higher risk that can involve hazardous waste
cleanup. Similar to the informal actions, formal actions also have specified time
frames to guide resolution; however, the time frames are specific to each action. One
type of formal action is an administrative order. Auditors reviewed the files for 3 of the
12 administrative orders issued in fiscal year 2003. In two of the three cases, the
responsible party failed to meet the Division’s initial compliance requirements, even
after repeated assistance from division staff. Further, both of these administrative
orders resulted from violations identified during inspections years ago—1994 and
1995 inspections, respectively.
1 According to division policy, once a facility has missed the RTC time frames set in the NOV, the Division will contact the
responsible party to discuss their options for demonstrating RTC. Policy calls for the inspector to state that one of three
options must occur within the next 45 days or a compliance order will be issued: 1) send proof to the Division that they
have returned to compliance, 2) take the appropriate steps to return to compliance within the 45 days and then notify the
Division, or 3) enter into a consent order when an extension can be negotiated between both parties.
The Division gives the
majority of responsible
parties 30 days to return
to compliance.
State of Arizona
page 26
Enforcement actions not always escalated—When responsible parties do
not return to compliance in a timely manner, the Division does not always escalate
enforcement actions to the next level as called for by policy. According to division
policy, a responsible party’s enforcement action, such as an NOC or NOV, should be
escalated to the next level if the responsible party does not correct its violation(s)
within the specified time frames. For example, if a responsible party received an NOC
and did not correct the violation within the time frame, the Division should then issue
the responsible party an NOV. However, according to the Division’s database, as of
November 30, 2003, the Division had not escalated any of the 35 informal
enforcement actions auditors reviewed where the facilities had not come into
compliance within the specified time frames.1 Department management indicated it
has limited resources to pursue enforcement actions, and evaluates each case
independently to determine the most efficient and effective manner in which to
proceed.
Similar to informal enforcement actions, division policy also calls for the escalation of
formal enforcement actions if the responsible party does not correct the violation
within the specified time frame. For example, an administrative order could be
escalated to a civil action. However, the Division may not always escalate its formal
The Division does not
always escalate
enforcement actions as
called for by policy.
1 According to Table 5, the 35 cases is a total of the enforcement actions for fiscal year 2003 and 2004 from the column
“Number Closed but Exceeded Designated Time Frame” and those from the column “Number Still Open and Exceeding
Designated Time Frame.”
Table 5: Hazardous Waste Section
Status of Informal Enforcement Actions
Fiscal Years 2003 and 2004
Fiscal
Year
Type
Number
Issued
Number Closed
Within Designated
Time Frame
Number Closed but
Exceeded Designated
Time Frame
Number Still Open
and Exceeding Designated
Time Frame
2003 NOC 7 4 3 0
NOV 49 33 9 7
Total 56 37 12 7
2004 1
NOC
22 1
11
6
3
NOV 21 1 5 3 4
Total 43 16 9 7
1 Statistics presented are from July 1, 2003 through November 30, 2003; for two NOCs and nine NOVs, the designated time frame had not
yet elapsed.
NOC = Notice of Opportunity to Correct Deficiencies
NOV = Notice of Violation
Source: Auditor General staff analysis of the Division’s inspections database (Paradox) and the Inspections, Compliance, and Enforcement
(ICE) database.
Office of the Auditor General
page 27
enforcement actions. Of the three administrative orders reviewed by auditors, all
issued in fiscal year 2003, the Division did not escalate one of them as specified by
policy. According to the Division, instead of escalating enforcement of this
administrative order, it continued to negotiate with the facility to bring it into
compliance. Further, the Division can send formal enforcement actions to the
Attorney General’s Office for resolution. However, the Division has managed several
formal enforcement actions itself instead of referring them to the Attorney General’s
Office for a civil lawsuit to be filed. According to the Department, if the negotiation
succeeds in returning a responsible party to compliance, then the referral to the
Attorney General’s Office is to obtain an appropriate civil penalty.
Computer system enhancements could improve enforcement
monitoring—One reason why the Division may not escalate enforcement actions
is that management and inspectors currently monitor the status of all enforcement
actions manually, which does not easily allow them to know which actions need to
be escalated. Although each inspector tracks his/her own inspection and
enforcement activity and submits a monthly report to the unit manager, there is no
system in place for the inspectors or management to easily view the status of the
enforcement actions and whether they have been resolved or not. Additionally,
according to management, staff turnover in the Hazardous Waste Section has
contributed to slow resolution of enforcement actions, since it often takes a new
inspector up to one year to become familiar with the Division’s policies and
procedures regarding the enforcement process.
To better monitor the status of all enforcement actions, the Division should modify its
new computer system to allow for the easy generation of management reports. In
February 2002, the Department implemented a new computer system to manage its
inspection and enforcement data. During the audit, the Department agreed that an
enforcement action tracking report would be a valuable tool and it reported that it
began implementation of this report on February 6, 2004. However, this report will
only assist management in tracking return-to-compliance time frames. It does not
include any enforcement actions that are in the review process. An additional report
should be generated to track these cases so management can monitor the
timeliness of issuing enforcement actions.
Recommendations
1. To more quickly notify responsible parties about violations identified during
inspections, the Division should explore ways to streamline its review and
approval process for enforcement actions.
2. The Division should consider setting in policy specific time frames for each step
in the enforcement action review and approval process.
3. The Division should escalate both informal and formal enforcement actions to
the next level as necessary against responsible parties that have not corrected
their violations.
4. The Division should modify its computer system to allow for the generation of a
management report to track the status of enforcement actions that are in the
review process, and should use this report to monitor the timeliness of issuing
these enforcement actions.
State of Arizona
page 28
During the audit, auditors gathered information about the status of cleanup efforts
within the State’s Water Quality Assurance Revolving Fund (WQARF) program, also
known as the State Superfund program. Auditors reviewed division information on
the progress of investigations and cleanup work at all WQARF sites, status in
identifying parties responsible for contamination, and how much money the
Department has recovered from those it has identified as responsible. Lastly, auditors
examined how the Department calculated the program’s administrative costs as a
result of new legislative requirements.
Superfund programs in Arizona
In Arizona, cleaning up sites contaminated by hazardous substances is managed by
both federal and state agencies. At the federal level, the Environmental Protection
Agency oversees cleanup under the authority of the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) or, in certain cases, by the
Resource Conservation and Recovery Act (RCRA). WQARF is the state program
responsible for identifying, assessing, and cleaning up soil and groundwater
contaminated with hazardous substances. In many respects WQARF and CERCLA
are similar, but reforms in 1997 substantially changed several key aspects of WQARF.
The beginnings of the Superfund—Congress passed CERCLA, also known as
the Superfund, in 1980 in response to the discovery of numerous hazardous waste
dump sites that were threatening human health and contaminating the environment.
One of the most famous of these is Love Canal in Niagara Falls, New York, where an
elementary school and housing development were built on top of an abandoned
chemical dump. Over time, chemicals began leaking into the groundwater and
seeping above ground, resulting in noxious fumes and concerns about birth defects,
miscarriages, and other health problems increasing among affected residents. When
Love Canal became a national issue in 1978, the only viable way the federal
government could deal with the problem was to declare the site a federal disaster
area. As Love Canal and other hazardous waste sites became more visible,
Congress passed CERCLA to give the Environmental Protection Agency more power
to deal with these problems. This power includes identifying sites where hazardous
Office of the Auditor General
OTHER PERTINENT
INFORMATION
page 29
Congress created the
Superfund program in
1980.
State of Arizona
page 30
waste releases have occurred, the ability to take appropriate action to remedy
releases, and to force parties responsible for a release to pay for cleanup.
State efforts to clean up contaminated sites—In 1986, the Legislature
created WQARF, the state equivalent of the federal superfund program. However,
dissatisfaction with the liability standards, cleanup goals, and the cost and slow pace
of cleanup prompted the formation of a task force in 1995 to seek changes in the
program. In 1997, the Legislature enacted reforms that changed several major parts
of the WQARF program:
􀁺􇩄 Dedicated funding—The first reform dedicated $18 million to the program
annually, which come from a mix of various appropriations and transfers from
state revenue sources. A.R.S. §49-282 stipulates that WQARF receive an annual
$15 million transfer from the Corporate Income Tax (CIT).1 This gave the WQARF
program funding that was more stable than under previous statutes.
􀁺􇩃 Change in liability—The second major reform changed the liability scheme of
WQARF from a joint liability scheme, similar to what the federal Superfund
program uses, to proportional liability. Under joint liability, one party can be held
liable for the entire cost of the cleanup regardless of the share of the waste
contributed by that party. In contrast, proportional liability requires responsible
parties to pay only for the cleanup of contamination they were responsible for at
a site. However, proportional liability leaves “orphaned shares,” which are
portions of cleanup costs that no responsible party pays for. The cost of cleaning
up these orphaned shares would then fall to the State.
􀁺􇩍 More settlement options—The third major reform was the creation of qualified
business and financial hardship settlements, which give liable businesses
options for settling their cleanup liability. A qualified business settlement allows
a business to settle for an amount less than its actual liability. To qualify for such
a settlement, the business must have an average annual gross income that is
less than $2 million for the 2 years preceding the initiation of an investigation into
that business’ share of the cleanup costs and for each of the 2 years prior to the
submission of the settlement application. The business can then settle and pay
10 percent of its average annual gross income for the 2-year period preceding
its application. A financial hardship settlement is available to those parties
demonstrating that their potential liability would affect their ability to stay in
business or require them to seek bankruptcy protection. Financial hardship
settlements do not take into account a party’s actual liability. Any costs for
cleanup that exceed the settlement amount would then be paid by the State.
1 A.R.S. §49-282 requires the State Treasurer to adjust the CIT transfer so that the combined total from the CIT and fee-generated
revenue is $18 million annually. Some types of revenue, including cost recovery collections and interest, are
not included in this calculation, which allows total program revenues to exceed $18 million annually. The revenue set at
$18 million has actually been lower for the last 2 fiscal years. In fiscal year 2002, these revenues were $8.7 million, and in
fiscal year 2003, they were $13.7 million.
Office of the Auditor General
page 31
􀁺􇨠 More flexible cleanup standards—The final major reform was the adoption of
more flexible cleanup standards. Previously, contaminated groundwater
cleanup usually used drinking water standards without taking into account cost
or feasibility. In contrast, the Department can now consider what the water will
be used for, as well as feasibility and cost in selecting a final remedy. Further, the
remedy does not necessarily have to return the contaminated water to drinking
water standards.
WQARF cleanup process
Figure 1 (see page 32) shows how the cleanup of sites contaminated by hazardous
substances happens in several stages. This includes the initial investigation of the
site to identifying those responsible, and finally, deciding on a final cleanup remedy.
Contractors do the actual work at sites, which includes collecting and analyzing data
that is later reviewed by department staff, preparing reports as part of the site
investigation, and designing, installing, operating and maintaining equipment
required to conduct a remedy.
When a site enters the WQARF program, it is added to the WQARF Registry, which
is a list of all the sites in the program. As of March 31, 2004, there were 33 sites listed
on the WQARF Registry.1 Figure 2 (see page 33) shows where each site is in the
various stages of the cleanup process. Three sites have finalized records of decision
and work on a final remedy is ongoing. Two other sites are nearing this stage, as they
have finalized proposed remedial action plans, while another site has just begun this
process. One site is in the feasibility study stage, and 16 are in the process of
undergoing or have just completed the remedial investigation. For the remaining 10
sites, the first step, the remedial investigation, has not yet begun.
While some sites have not yet begun the WQARF cleanup process, this does not
mean that there is no work being done to address contamination. At all 33 sites, the
Department has evaluated the current risk to the public and the environment, and for
some sites it is taking action to address contamination through an Early Response
Action, Interim Remedial Action, or the Final Remedy. Specifically, 24 sites have been
or are currently being addressed by either an interim remedial or early response
action as described in Figure 1 (see page 32). Another five sites were evaluated to
determine whether an early response action was appropriate, but the Department
has not yet taken any action. The remainder of the sites are being either cleaned up
through the final remedy or are nearing this stage.
As of March 2004, there
were 33 sites on the
WQARF Registry.
1 The EPA is cleaning up an additional nine sites listed on the federal National Priority List. The Department of Defense is
cleaning up ten sites. Two sites were added to the WQARF registry in June 2004 after the completion of audit work and
are not included in any of the numbers reported in this section.
State of Arizona
page 32
Figure 1: Water Quality Assurance Revolving Fund (WQARF)
Cleanup Process
As of March 31, 2004
Preliminary Investigation
Determines whether the contamination at a site is severe enough to warrant further
action and the appropriate program for the site.
No Further Action/Deferred
The contamination is not severe
enough to warrant further action at
this time.
List on Registry
The contamination exceeds
allowed limits, and WQARF is the
appropriate program to deal with
site.
Referral
The source of the contamination
can be dealt with through another
program such as hazardous
waste or voluntary remediation.
Interim Remedial Action
Action taken to treat
contamination at a well supplying
water for municipal, domestic,
irrigation, or agricultural use.
Early Response Action
Action taken before the final
remedy is chosen in order to
protect public health, the
environment, or to keep
contamination from spreading. This
may include treating contaminated
groundwater or the removal of
hazardous waste.
Source: Auditor General staff analysis of Water Quality Assurance Revolving Fund statutes, rules, and program reports.
Optional
Remedial Investigation
Determines the source and extent of the
contamination and identifies the remedial objectives
for cleanup at the site.
Feasibility Study
Identifies several options for meeting the remedial
objectives.
Proposed Remedial Action Plan
Selects one of the options from the Feasibility
Study, makes it public, and invites comments from
the public.
Record of Decision
Documents the plan chosen to clean up the site
after which the final remedy is implemented.
Office of the Auditor General
page 33
Figure 2: Water Quality Assurance Revolving Fund
Stages by Site
As of March 31, 2004
Remedial
Investigation
Feasibility
Study
Proposed
Remedial
Action Plan
Sites Started Completed Started Completed Started Completed
Record
of
Decision
East Central Phoenix
24th Street & Grand Canal
32nd Street & Indian School
38th Street & Indian School
40th Street & Indian School
40th Street & Osborn
48th Street & Indian School
West Central Phoenix
East Grand Avenue
North Canal Plume
North Plume
West Grand Avenue
West Osborn Complex
7th Street & Arizona Avenue
16th Street & Camelback
Klondyke Mine Tailings
20th Street & Factor
Broadway Pantano
Central & Camelback
East Washington Fluff
El Camino del Cerro
Miracle Mile
Park Euclid
Payson PCE
Pinal Creek
Shannon-Rillito
South Mesa
Tonto & Cherry
Tyson Wash
West Van Buren
Western Avenue
Estes Landfill
Los Reales
Silverbell Jail Annex
Vulture Mill
Early Response Action—Evaluation Completed
Early or Interim Response Action—Ongoing/Completed
No Early Response Action
Source: Auditor General staff analysis of Water Quality Assurance Revolving Fund site work reports.
Figure 2: Water Quality Assurance Revolving Fund
Stages by Site
As of March 31, 2004
State of Arizona
page 34
Potentially responsible party searches
Cleanup efforts at WQARF sites are funded in part by cost recovery from the parties
responsible for contamination. Responsible parties may include property owners,
businesses that operated at a site, or other parties that might have disposed of
hazardous substances on the site. The Department conducts a potentially
responsible party (PRP) search in conjunction with the remedial investigation,
proposed remedial action plan, and record of decision. As the remedial investigation
gathers more information about the types, extent, and sources of contamination, the
Department can identify those who might be responsible for the problem. Much of
the actual work done as part of PRP searches is carried out by a contractor.
The Department has begun work on PRP searches at all 33 sites. However, not all of
these searches are active. For example, the Department may terminate a search if it
determines that cost recovery at a site is not viable because a responsible party is
bankrupt or defunct. Other searches, where PRPs are eligible for a qualified business
settlement, have been suspended while the Department awaits possible reform on
this issue.1 Searches may also be on hold until the Department is able to identify
sources of contamination through the remedial investigation. Of the PRP searches at
the 33 sites:
􀁺􇩎 Nine are currently ongoing;
􀁺􇩔 Ten are suspended pending potential changes to qualified business
settlements;
􀁺􇩆 Five are on hold while the Department gathers more information via the remedial
investigation;
􀁺􇩆 Four are completed due to the responsible party taking the lead and paying for
cleanup on its own; and
􀁺􇩆 Five searches were terminated because there are no viable parties from which
the Department can recover costs.
The time it takes to complete a PRP search can range from less than 2 years to over
10 years, and depends on many factors. Some of the searches took less than 2 years
and determined that no viable parties remained from which the Department could
PRP searches have
begun at all 33 WQARF
sites.
1 The WQARF Advisory Board, a board made up of state officials and other stakeholders, was established as part of the
1997 reforms to monitor the program and offer recommendations for improvement. The Board is investigating several
options in regard to reforming qualified business settlements. One option being considered is the creation of a dry cleaner
remediation program. Another option being considered is to raise the annual income threshold at which businesses
become eligible for qualified business settlements.
Office of the Auditor General
page 35
recover costs. Other searches, like the PRP search at the Estes Landfill, a now-closed
municipal landfill located in Phoenix, date back to before WQARF reform in
1997. According to department officials, the complexity of the site and the large
number of PRPs contribute to the search taking such a long time to complete.
Cost recovery and cleanup spending
Identifying responsible parties through PRP searches should lead to the Department
recovering cleanup costs. Original estimates were that responsible parties would
fund 65 percent of the program after the reforms. However, there is concern among
stakeholders and program management that cost recovery from responsible parties
will be much less than the original estimate. One reason for the difference between
the initial estimates and what may become reality is that responsible parties cannot
be found or are not viable, resulting in orphaned shares.
Despite concerns about the ability to collect, the Department has recovered costs
from responsible parties while other parties pay directly for cleanup. These other
parties are known as working parties and pay for cleanup at a site without entering
into a settlement with the Department. The money these working parties spend does
not pass through WQARF and is not reflected as revenue for the program. According
to the Department, it has recovered a total of over $12.4 million from responsible
parties and spent $6.1 million on PRP searches since the beginning of fiscal year
1998.1 In addition, the Department estimates that working parties have spent over
$120 million of their own money on cleanup work at 12 sites. In all, work at 17 sites
is funded either through settlements or working party contributions.
For sites where the Department cannot find viable, responsible parties, the State will
have to pay for all or part of the cleanup. There are now four sites where PRP
searches have found no viable, responsible parties. At least 19 other sites may have
some orphaned shares as well. This means the State will have to pay for some of the
costs of cleanup at these sites while other viable, responsible parties pay for their
share.
Since fiscal year 2001, according to the Department, it has spent more on sites than
on its core costs, which include personnel, conducting PRP searches, and transfers
to the Attorney General. Site costs include remedial investigations, feasibility studies,
and other cleanup costs. For fiscal year 2004, the Department budgeted $11.3
million for work on sites and $7.6 million for its core costs. The Department expects
expenditures on sites to continue to exceed those of core costs.
Since fiscal year 2001,
WQARF has spent more
money on sites than on
core costs.
1 This does not include transfers to the Attorney General who, in addition to other duties, provides assistance on PRP
searches. WQARF transfers to the Attorney General total $5.6 million between fiscal years 1998 and 2003.
Administrative costs are calculated appropriately
In 2003, the Legislature required the WQARF Advisory Board to make
recommendations to the Department about how to reduce the administrative costs
of the WQARF program.1 To fulfill this requirement, the WQARF Board and the
Department used legislative guidelines to create three categories of costs:
administrative, program, and PRP search-related. The WQARF Board and the
Department determined that administrative costs include senior management
activities, clerical support, WQARF fund administration, contract administration, rule
development activities, nonsite specific public notices, data entry, and community
involvement personnel. Program costs (or costs related to actual cleanup work) are
defined to include site contractor costs, activities related to project management,
hydrologic support, preliminary investigations, and emergency response. Finally,
PRP search costs include the search contractor, legal assistance, and search
oversight.
The Department and the WQARF Advisory Board determined that for fiscal year
2004, WQARF will spend approximately $2 million, or 9.9 percent of its total budget,
on administrative costs. The Advisory Board recommended setting a ceiling of $2.5
million for administrative costs. Although the Department’s calculated amount of
administrative costs for fiscal year 2004 was not audited, the categorization of these
costs and the methodology used to calculate them appear appropriate.
1 Laws 2003, Chapter 262, section 32.
State of Arizona
page 36
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
ARIZONA DEPARTMENT
OF ENVIRONMENTAL QUALITY
1110 West Washington Street 􀁹􇥐 Phoenix, Arizona 85007
Janet Napolitano (602) 771-2300 􀁹􇤠 www.adeq.state.az.us
Governor
Stephen A. Owens
Director
Northern Regional Office
1515 East Cedar Avenue 􀁹􇤠 Suite F 􀁹􇤠 Flagstaff, AZ
86004
(928) 779-0313
Southern Regional Office
400 West Congress Street 􀁹􇤠 Suite 433 􀁹􇤠 Tucson, AZ
85701
(520) 628-6733
Printed on recy cled paper
August 26, 2004
Debra K. Davenport, C.P.A.
Auditor General
2810 North 44th Street, Suite 410
Phoenix, AZ 85018
Re: Performance audit and Sunset review – Waste Programs Division
Dear Ms. Davenport:
On behalf of the Arizona Department of Environmental Quality, we appreciate the opportunity to
respond to the Waste Programs Division performance audit report. The report is a useful
assessment of the Division’s enforcement time frames and the Underground Storage Tank State
Assurance Fund. We thank the Office of the Auditor General for its effective communication
throughout the audit process.
As the audit reflects, the Waste Programs Division’s mission is to “protect and enhance public
health and the environment by reducing the risk associated with waste management, regulated
substances and contaminated sites.” The Division achieves this mission with hazardous waste
facility inspections, landfill approvals, site investigations, clean up orders and recycling fund
grants administered by the Division, to name only a few of the Division’s responsibilities.
Despite revenue and budget reductions in the past few years, ADEQ has seen improvements in
quality and performance, including the Hazardous Waste Program, Underground Storage Tank
Program and the State Assurance Fund, which are the focus of your audit.
As the audit noted, children’s health is a goal of the Waste Programs Division and the
Department as a whole. This goal is a direct result of the Governor’s leadership to protect
Arizona’s most valuable resource--our children. The Division has taken significant steps to
improve the environment for children. For example, ADEQ’s pollution prevention program,
within the Waste Programs Division, recently received a grant from the U.S. Environmental
Protection Agency to educate and encourage school districts to construct or retrofit schools to be
more environmentally friendly. This “Green Schools” initiative will develop design,
construction and operational practices that will reduce children’s exposure to potentially harmful
chemicals typically found in school settings.
Additionally, the Division surveyed Arizona schools on the use of chromated copper arsenic
wood-coated playground equipment to assess children’s potential exposure to this substance.
Finally, when TCE-contaminated water was being used for irrigation in a north Arizona
Ms. Davenport Page 2 of 6
August 26, 2004
elementary school, the Division quickly stepped in and conducted sampling of drinking water
wells to ensure that children were being protected. The Division is conducting further
investigation of the cause of contamination in the irrigation water and options for correcting the
problem.
FINDING 1: CHANGES HAVE BEEN MADE TO THE STATE ASSURANCE FUND,
AND THE DEPARTMENT SHOULD TAKE ADDITIONAL ACTIONS
The audit addressed the Underground Storage Tank Program and the State Assurance Fund
(SAF). As the audit noted, the Legislature has enacted numerous significant changes to the
Department’s administration of the SAF, including an eligibility deadline of 2006 and claims
deadline of 2010. To better enable the Department to implement the new legislation and to
improve efficiencies throughout the UST and SAF programs, these programs have been
consolidated into a new Tank Programs Division. The new Division consists of the SAF
Program, which was moved from the Administrative Services Division, and the UST Corrective
Action Section and UST Program Support Section, which were moved from the Waste Programs
Division. The new Division will focus on implementing the new legislation, cleaning up leaking
UST sites, increasing outreach efforts across the state, increasing inspections and compliance,
streamlining SAF, and continuing other program efforts. The creation of the new Division will
allow the Department to effectively implement the statutory changes and the audit
recommendations.
As the audit recognizes, the Department also has made substantial administrative improvements
to the SAF. By January 2003, the Department faced a backlog of over 1,100 unpaid SAF
applications by SAF claimants. In early 2003, an internal working group was established by the
Department to determine the reasons for this enormous backlog. In May 2003, the Department
made key administrative changes to the SAF, and, as the audit recognizes, since that time, the
Department has eliminated this backlog completely. SAF applicants no longer must wait years
for payment. The SAF is operating on a cash basis and, as applications are processed and
approved, they are paid. The Department thanks the Auditor General for noting this dramatic
improvement to SAF claims processing in the audit.
Further, the audit recognizes the significant progress the UST program has made since October
2003 in enforcing the federal and state regulations concerning financial responsibility (FR)
requirements for owners and operators of underground storage tanks. The Department has
recognized the importance of enforcing FR requirements and initiated an aggressive program of
informing the regulated public about FR requirements in June 2003. The Department sent post
cards to all owners and operators of underground storage tanks describing the FR requirements.
In October 2003, the UST program transmitted FR site status letters to more than 450 UST
owners that were identified as not having FR. This effort resulted in an increase in the FR
compliance rate from 52 percent of UST facilities in October 2003 to 62 percent in January
2004. To further increase the FR compliance rate, the department began conducting operational
compliance inspections at facilities out of compliance with FR requirements. This effort is the
prelude to more formal enforcement measures, including the issuance of orders and the
assessment of penalties, if required.
Ms. Davenport Page 3 of 6
August 26, 2004
In addition to the Department’s increased effort to ensure compliance with the financial
responsibility requirements, from July 1, 2003, to July 31, 2004, the UST program dramatically
improved its UST facility inspection cycle times from greater than 9 years to approximately once
every 4 years. During this time period, 618 facilities were inspected for operational compliance
which resulted in the issuance of 47 Notice of Violations for significant operational violations.
The program is in the process of hiring additional inspectors to reduce the inspection cycle to
every 3 years.
The audit recommendations address continued enforcement of the UST financial responsibility
requirements and an evaluation of the reasonableness of the SAF cost ceilings. The Department
agrees with the auditor’s assessment that compliance with financial responsibility requirements
is a high priority as the SAF comes to an end. Similarly, to reduce the burden on the SAF and
thereby help ensure all valid claims are paid and the new Regulated Substance Fund is fully
funded, the Department will reassess the existing cost ceilings. Please be assured that the new
Tank Programs Division will implement these recommendations in addition to other steps
necessary to make SAF a more efficient and effective public fund.
RECOMMENDATIONS
1. The Department should continue to work on increasing compliance with financial assurance
requirements, including pursuing formal enforcement actions, such as consent orders and
compliance orders, as necessary.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
2. The Department should assess the cleanup costs charged to the State Assurance Fund to see
if cost ceilings are being treated as the actual price of cleanup costs rather than as an upper
limit for costs.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. If contractors are routinely charging at the cost ceilings for certain cleanup activities, the
Department should consider revising cost ceilings to better reflect the true cost of cleanup
work.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
4. If the Department performs a cost survey to create the cost ceilings that will be effective in
July 2005, it should use an appropriate methodology and not allow respondents to answer
questions that do not pertain to their occupation.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Ms. Davenport Page 4 of 6
August 26, 2004
5. The Department should examine the feasibility of instituting competitive bidding as a method
of controlling State Assurance Fund costs.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
FINDING 2: THE DIVISION SHOULD IMPROVE ITS HAZARDOUS WASTE
ENFORCEMENT EFFORTS
The audit of the hazardous waste enforcement program focused very specifically on the
timeliness of enforcement actions. ADEQ recognizes the importance of swift enforcement, and
the Division will explore and implement ways to speed up, streamline, and escalate as
appropriate its enforcement actions in accordance with the recommendations in the audit.
However, the audit’s focus on a single aspect of the hazardous waste enforcement program gives
an incomplete picture of the total effectiveness and accomplishments of our hazardous waste
enforcement efforts.
First and foremost, the Department’s hazardous waste inspection program ensures that any
imminent and substantial risk discovered at an inspection is addressed during or immediately in
response to the inspection. This is accomplished by providing the facility with immediate
written and oral instructions on major violations at the time of the inspection through an exit
debriefing interview and written instructions. The exit debriefing frequently requires the facility
to provide documentation to ADEQ that major violations are addressed within 10 days.
Although Arizona law requires only the inspection report to be issued within 45 days after the
inspection, ADEQ has adopted a policy requiring that the initial enforcement action also be
issued within this same time frame. Even though ADEQ’s inspection report and enforcement
action may in some cases be issued up to 90 days after the inspection, ADEQ’s use of the exit
debriefing has ensured that any actual imminent risk to human health or the environment is
corrected in a timely manner.
Overall, the hazardous waste enforcement program is very effective in discovering violations,
returning violators to compliance, and imposing appropriate penalties to serve as a deterrent.
For example, the audit includes a summary table, which demonstrates clearly that the number of
informal enforcement actions--Notices of Opportunity to Correct (NOCs) and Notices of
Violation (NOVs)--have generally increased over the last four years, and during fiscal year 2004
the program initiated 96 informal actions (36 NOCs and 60 NOVs), compared to 56, 73, and 30
in fiscal years 2003, 2002, and 2001, respectively. This far exceeds the number of actions taken
in any fiscal year since the year 2000, and is a 71% increase compared to the 56 that were issued
in fiscal year 2003. This data is indicative of a program that is active, mature and appropriately
enforcing Arizona’s hazardous waste laws.
ADEQ’s policy generally provides that facilities get the opportunity to address violations in the
context of an informal enforcement action, the Department must pursue penalties when a facility
has either received an economic advantage by operating out of compliance or they have
significantly violated the law threatening human health and the environment. The hazardous
waste program has demonstrated a record of taking aggressive, yet appropriate, penalty actions
Ms. Davenport Page 5 of 6
August 26, 2004
for the state. In 2001, ADEQ and EPA settled the largest hazardous waste case in the United
States for over $22 million. Since that time, ADEQ has consistently taken penalty actions that
are appropriate given the potential contamination that could occur as a result of mismanagement
of hazardous waste. In the last two years, the Department has concluded 9 penalty cases
resulting in facilities paying more than $600,000 to the state’s General Fund and more than
$100,000 in supplemental environmental projects (SEP). See Table 1.
Table 1. 2002-2004 Hazardous Waste Enforcement Penalty Cases
Aviation Management
Services
$30,000
W.L. Gore & Associates $90,000
Phoenix Heat Treating, Inc. $50,000
Arizona Public Service $200,000
Dome Rock Industries, Inc. $100,000
Sunbelt Tank $7,000
Thermofluids $22,250
Superior Special Services $143,000, plus $125,000 SEP
Mesa Oil $7,500, plus $1,000 SEP
In addition to penalty cases, ADEQ’s hazardous waste program also has taken administrative
actions that directly protect the citizens of Arizona. On February 26, 2003 the Department
issued orders against and revoked the license of Innovative Waste Utilization, LLC, in Phoenix.
On March 7, 2003, ADEQ initiated an emergency response action to remove approximately
1,000 barrels of hazardous waste from the facility after a number of the barrels were found to
present an imminent and substantial endangerment to the community during an inspection earlier
in that day. These and other enforcement actions demonstrate the Department’s increased efforts
to protect and enhance public health and the environment, and we are committed to do more.
The audit report states that facilities often do not return to compliance within the short time
frames required by the hazardous waste program. ADEQ operates with the goal of minimizing
potential impacts to human health and the environment, and therefore, returning facilities to
compliance within the shortest possible time. To that end, the hazardous waste enforcement
program uses aggressive time frames for achieving compliance. As the report states, these time
frames are often far less than the 120 days initially allowed by the Department’s policy. If a
facility makes progress on accomplishing all of the required actions, ADEQ has the authority to
extend the time frame an additional 60 days. Although the data you have presented in the audit
report suggest that facilities are not returning to compliance within an acceptable time frame, a
further review of the data shows that the program is, in fact, responsibly taking actions to return
facilities to compliance. ADEQ records show that 96% of all facilities receiving informal
enforcement actions during fiscal year 2004 were either returned to compliance or escalated for
further enforcement within the 180 total days allowed by ADEQ policy.
Ms. Davenport Page 6 of 6
August 26, 2004
RECOMMENDATIONS
1. To more quickly notify responsible parties about violations identified during inspections, the
Division should explore ways to streamline its review and approval process for enforcement
actions.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
2. The Division should consider setting in policy specific timeframes for each step in the
enforcement action review and approval process.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. The Division should escalate both informal and formal enforcement actions to the next level
as necessary against responsible parties that have not corrected their violations.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
4. The Division should modify its computer system to allow for the generation of management
reports to track the status of enforcement actions.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Thank you for the opportunity to respond to the performance audit and Sunset review for the
Waste Programs Division.
Sincerely,
Stephen A. Owens
Director
02-07 Arizona Health Care Cost
Containment System—Medical
Services Contracting
02-08 Arizona Health Care Cost
Containment System—
Quality of Care
02-09 Arizona Health Care Cost
Containment System—
Sunset Factors
02-10 Department of Economic
Security—Division of Children,
Youth and Families, Child
Protective Services
02-11 Department of Health
Services—Health Start
Program
02-12 HB2003 Children’s Behavioral
Health Services Monies
02-13 Department of Health
Services—Office of Long Term
Care
03-L1 Competitive Electric Metering,
Meter Reading, and Billing
and Collections
03-01 Government Information
Technology Agency—
State-wide Technology
Contracting Issues
03-02 Registrar of Contractors
03-03 Water Infrastructure Finance
Authority
03-04 State Board of Funeral
Directors and Embalmers
03-05 Department of Economic
Security—Child Protective
Services—Foster Care
Placement Stability and
Foster Parent Com